Big Mac Index: Sweden’s Krona Overvalued

Via The Swedish Wire:

The Swedish krona is overvalued by 74.5 percent, according to The Economist’s Big Mac index.

Based on the index, 1 US-dollar should cost 11 Swedish kronor instead of 6.30 as today.

The Big Mac index is The Economist’s lighthearted analysis of foreign-exchange rates.

Its secret sauce is the theory of purchasing-power parity (PPP), according to which prices and exchange rates should adjust over the long run, so that identical baskets of tradable goods cost the same across countries.

In Sweden a Big Mac costs the corresponding $7.62, compared to $4.37 in the U.S.

The Big Mac index also suggests that currencies are overvalued in Norway, Switzerland, and Brazil.

Currencies in much of the emerging world, including Russia, China, and India, are too cheap relative to the dollar on our gauge.

The magazine explains how it counts: At market exchange rates, the Canadian version of the burger costs $5.39, compared with an average price of $4.37 in America.

By our reckoning, then, the Canadian dollar is roughly 24% overvalued relative to its American counterpart.

In Mexico, by contrast, a Big Mac is just $2.90 at market exchange rates, suggesting the peso is 33% below its long-run value relative to the dollar.

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