REUTERS
According to the so-called “Big Mac index,” the U.S. dollar should trade for UAH 7.3 instead of UAH 23.35, The Economist reports.
The exchange rate of the Ukrainian hryvnia is undervalued by 68.7%, The Economist reports.
According to the research, the justified exchange rate of the Ukrainian hryvnia to the U.S. dollar should be at UAH 7.3 instead of UAH 23.4.
Only the Venezuelan bolivar and the Russian ruble are ahead of the hryvnia in the said rating.
For example, the average price of a Big Mac in America in January 2016 was $4.93; while in Venezuela it was only $0.66 at market exchange rates. So the "raw" Big Mac index says that the bolivar was undervalued by 86.5% at that time.
The price of a Big Mac in Russia was RUB 114, or $1.53, so the Russian ruble is undervalued by 69%.
Read alsoYear 2016: Time of great expectationsThe most overestimated currencies are the Swiss franc (30.7%), the Swedish krone (6.1%) and the Norwegian krone (5.8%).
UNIAN memo. The Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level, based on the theory of purchasing-power parity – the notion that in the long run exchange rates should move toward the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.
Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies.