Welcome to Dr Lincoln's blog

Welcome for visiting my blog. Hope you enjoy the visit and always welcome back again. Have a nice day!


International comparison of currencies

Comments on Daily chart "The Big Mac index", 13/01/2012, http://www.economist.com/blogs/graphicdetail/2012/01/daily-chart-3?page=1
The big mac index is not a basket of goods and services and suffers a universal weakness in that it is a largely a service and is not an easily internationally traded goods or service, so wage and income levels have a mostly monotonic effect, that, is currencies in low income and wage countries appear to be more undervalued than high income/wage countries, apart from short term exchange rates moves.

If a highly traded goods or services would be less subject to this effect of non-trade services.
The point is price differences can be large for non-trade goods and services, and less so for traded goods and services.
The Economist should take this into account when making statements on currency valuations.
Of course, the advantage of big mac is that it is fairly comparable in quality that should not be overlooked.
PS: The Hong Kong case seems very strange.

No comments:

Post a Comment