The recent data from the Big Mac index indicated that, in New Zealand a Big Mac costs $6.60 NZD. However, in the United States it costs $5.71 USD. As Stuff.co.nz notes this implies an exchange rate of 1.16 in USD/NZD terms (a US dollar is worth 1.16 NZ dollars) if the price of the Big Mac is the same in both countries.
But instead google tells us the exchange rate is 1.51, and so the New Zealand dollar appears approximately 23% undervalued. But is that true? Should global currencies adjust to set the price of Big Macs equal in every market on earth? Let’s think about that a bit more below.Read more