[logan]

The Economist regularly publishes their Big Mac Index, which is a funny read presenting the price of the popular fast food at different places around the globe. The index is based on the idea that any particular good should have the same price, say, one dollar, regardless of the country where it is sold. According to this index the price of the Big Mac in Europe is about 16% overvalued compared to the cost of a Big Mac in the U.S.

http://bigmacindex.org/2011-big-mac-index.html

I listen to economists all the time and none of them can really explain satisfactorily why the Euro remains so overvalued. Even during these turbulent times the Euro value remains fairly constant.
Of course this problem has a direct relationship to Spain’s current woes. If the Peseta still existed interest rates would be close to zero and the exchange rate to Sterling around 270. At least under that scenario Spain would have a fighting chance to extract itself from the financial mire they currently find themselves in.
The implicit implication of the Big Mac index suggests to me that the Euro potentially will fall considerably in value at some point very soon.

[peterhun]

@logan wrote:

According to this index the price of the Big Mac in Europe is about 16% overvalued compared to the cost of a Big Mac in the U.S.

http://bigmacindex.org/2011-big-mac-index.html

I listen to economists all the time and none of them can really explain satisfactorily why the Euro remains so overvalued.

Is it 16% or 21%? That’s pretty close to the VAT rate.

I wonder how it accounts for the fact that MacDonald is consider vile and expensive in countries like Poland so nobody buys and they have no scale. UK has a lot of MacD’s and prices are almost in sync with the USA.

[logan]

The US does not have a VAT rate but they do have a sales tax of between 5% and 10%. It varies according to the particular State.
The only interest for me personally are the currency variants. I would not touch a Big Mac with a long pole.
Even allowing for the VAT differences within the Eurozone it does tend to indicate an over valued currency.

[peterhun]

@logan wrote:

The US does not have a VAT rate but they do have a sales tax of between 5% and 10%. It varies according to the particular State.
The only interest for me personally are the currency variants. I would not touch a Big Mac with a long pole.
Even allowing for the VAT differences within the Eurozone it does tend to indicate an over valued currency.

My point is the difference could be simply due to the 20% VAT, Also the US is no longer the AAA gold standard on prices, more of a poorer debtor nation. The Euro is the DM due to the German export powerhouse.

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