COUNTRIES with McDonald’s fast-food restaurants may only rarely become embroiled in military conflict (Russia and Ukraine are obvious exceptions at the moment), but currency wars are another matter. In recent years central banks in many rich economies fired up big bond-buying schemes to put some sizzle into economies that had only recently emerged from a deep freeze. Emerging-market governments complained that the capital that flowed their way as a result was hard to digest. Meanwhile Americans griped that China was serving up an undercooked yuan. Burgernomics provides one way to keep track of the food fight.Our Big Mac index is based on the theory of purchasing-power parity. It says that in the long run exchange rates ought to adjust so that a basket of goods and services costs the same across countries. Our basket contains just one item, a Big Mac (except in India, where we substitute the Maharaja Mac, a chicken sandwich). Since a Big Mac costs 48 kroner ($7.76) in Norway and only $4.80 in America, the kroner is overvalued by 62% according to this lighthearted, protein-rich analysis, making it the most puffed-up currency in the index. The same...
from The Economist: Finance and economics http://ift.tt/WK2ZPI
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