Big Mac index: The shekel is more than 12% above its fair value against the dollar
Posted on Jan 14, 2021 by Ifi Reporter
The shekel is one of the most expensive currencies in the world and trades more than 12% above its fair value against the dollar in accordance with GDP per capita, according to the updated Big Mac index published yesterday by Economist magazine.
The Big Mac index, which the Economist has been compiling since 1986, is based on the principle of purchasing power, according to which exchange rates must be adjusted in the long run in order for the basket of consumption and services to rise the same between countries. If a Big Mac burger at the McDonalds chain, which costs $ 5.66 in the US, is considered particularly cheap in a particular country, then its currency is below its fair value against the dollar.
However, The Economist notes that the Big Mac index - which is updated twice a year - does not purport to be an accurate measure of currency value, but merely a tool to make exchange rate theory easier to understand.
According to the latest index data published yesterday, the Big Mac costs an average of 17 shekels ($ 5.35) in Israel, hence the shekel is trading 5.5% below its fair value against the dollar. However, in line with the differences in gross domestic product (GDP) per capita between the two countries, the price of Big Mac in Israel should be 16% cheaper than its price in the US, hence the shekel is trading at 12.3% above its fair value against the dollar.