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May 26, 2006

Purchasing power patty

The twentieth anniversary of the Economist's Big Mac index suggests the Canadian dollar is currently slightly over-valued. Much as I had suspected.

The Economist's Big Mac index is based on one of the oldest concepts in international economics: the theory of purchasing-power parity (PPP), which argues that in the long run, exchange rates should move towards levels that would equalise the prices of an identical basket of goods and services in any two countries. Our “basket” is a McDonald's Big Mac, produced in around 120 countries. The Big Mac PPP is the exchange rate that would leave burgers costing the same in America as elsewhere.

Posted by Ghost of a flea at May 26, 2006 07:33 AM