The Big Mac Index -

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Jul 10th Reuse this content About The Economist. Charlemagne Britain and the EU will remain close even after Brexit. Subscribe now. Each week, over one million subscribers trust us to help them make sense of the world. This was a major talking point at the G20 conference in Korea in November see Seoul traders and the following clip from Reuters: Obama pressures China at G So is the yuan undervalued and, if so, has there been any appreciation to reduce the degree of undervaluation?

In July the peg was relaxed and the yuan has appreciated.

Big Mac Index Spreadsheet

In real terms the appreciation has been greater. Chinese inflation is above US inflation. Latest figures for Chinese inflation show consumer prices rising by an annual rate of 5. This compares with 1. This makes the real appreciation greater.

But despite this appreciation, the USA maintains that the Chinese currency is still considerably undervalued. Links to the relevant data are given below.

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Read the articles and then use the data to answer the questions. Questions Using Bank for International Settlements data above broad indices , plot the nominal and real exchange rate indices for the US dollar and the yuan from to the present day.

How much have a the nominal and b the real yuan exchange rate indices appreciated against the dollar exchange rate indices? Note: you can use the Excel data to plot all four series on the same diagram. Why has the Chinese rate of inflation risen? How are the anti-inflationary policies being considered by the Chinese authorities likely to impact on a the yuan exchange rate b the Chinese current account?

In what ways do the Chinese authorities intervene in the foreign exchange market? What are meant by purchasing power parity PPP exchange rates? Is the Big Mac index a good guide to the degree to which a currency is under- or overvalued?

The Big Mac Index — Historical Data from the Economist's Big Mac Index

Trade relations between the USA and China have deteriorated recently. There are two key issues: the exchange rate and trade protectionism. The Chinese currency, the yuan or renmimbi, since has been officially pegged to a trade-weighted basket of other currencies.

In recent months, however, as the dollar has fallen relative to other major currencies, so too has the yuan. It seems as if the peg is with the dollar, not with the basket. From March to December , the exchange rate index of the dollar depreciated by 16 per cent. Yet the exchange rate between the yuan and the dollar hardly changed.

Big Mac Index Exposes Flawed Inflation Data

In other words, the yuan depreciated along with the dollar against other world currencies, such as the euro, the pound and the yen. The trade advantage that this was giving to the USA with other countries did not apply to China.