The greatest triumph of the Big Mac index has been in tracking the euro.
In other words, the yuan is overvalued and not undervalued as the Big Mac index suggests.
Everybody, that is, except the Big Mac index, which suggested that the euro started off significantly overvalued.
The Economist's Big Mac index offers a crude estimate of how far exchange rates are from PPP.
Some readers beef that our Big Mac index does not cut the mustard.
But the euro has instead tumbled exactly as the Big Mac index had signalled.
The Economist's Big Mac Index, a light-hearted guide to how far currencies are from fair value, provides some answers.
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For example, according to the Big Mac index, sterling is overvalued by 26% against the dollar and by 13% against the euro.
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Yet, curiously, several academic studies have concluded that the Big Mac index is surprisingly accurate in tracking exchange rates over the longer term.
The Chinese yuan has been undervalued for the past few years according to the Big Mac Index, but it has now improved to become fairly valued.
The Australian dollar might be undervalued according to your Big Mac index, but at least when you have one you know it is the genuine article.
Nevertheless, some academic studies of the Big Mac index have concluded that betting on the most undervalued of the main currencies each year is a profitable strategy.
Using a simple model, which adjusts the Big Mac index for differences in countries' GDP per head and relative labour costs, gives the result that the yuan is now less than 5% undervalued.
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One of the best-known hedge funds, Soros Fund Management, admitted that it chewed over the sell signal given by the Big Mac index when the euro was launched, but then decided to ignore it.
While it makes sense for The Economist to compute a Big Mac Index for a product that is basically the same wherever it is sold, price comparisons of services that are highly differentiated across countries are less revealing.
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The ubiquity of the sandwich worldwide has proven to have economic importance as well, as The Economist magazine has run its Big Mac Index since 1986, which compares the price of the Big Mac across countries to value currency.
The Big Mac Index uses Purchasing Power Parity (PPP) in comparing the price of the ubiquitous Big Mac across countries relative to its price in the USA. PPP refers to the idea that exchange rates across two countries should be equal to the relative price of a basket of goods and services in both countries.
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