Our basket is a McDonalds Big Mac, which is produced in about 120 countries. Thus in the long run, the exchange rate between two currencies should move towards the rate that equalises the prices of an identical basket of goods and services in each country. It is not intended as a precise predictor of exchange rates, but a tool to make economic theory more digestible.īurgernomics is based on the theory of purchasing-power parity, the notion that a dollar should buy the same amount in all countries. We first launched this 14 years ago as a light-hearted guide to whether currencies are at their correct exchange rate. IT IS that time of the year when The Economist munches its way around the globe in order to update our Big Mac index. Some people read tea leaves to predict the future.
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