The Big Mac Index indicates that the Swedish krona is significantly overvalued against the dollar and euro. With a Big Mac costing 71 SEK in Sweden and $6 in the US, the implied exchange rate is 11.80 SEK per dollar, compared to the actual rate of 9.70 SEK. This suggests a 22% overvaluation. The krona is also overvalued by 6% against the euro.
Big Mac Index Reveals Swedish Krona is Overvalued
Big Mac Index Reveals Swedish Krona is Overvalued
Following recent gains, the krona is now clearly overvalued against the dollar, at least according to the so-called Big Mac Index.
A Big Mac costs 71 SEK in Sweden and $6 (approximately 58 SEK) in the US. This would imply an exchange rate of 11.80 SEK per dollar, according to The Economist's long-standing Big Mac Index, which is based on the idea that the cost of the same burger in different countries should reflect an exchange rate.
However, the actual exchange rate in July, when the index was last updated, was 9.70 SEK per dollar. Thus, the krona is overvalued by a full 22%, according to this simplified calculation method.
For a Swede, it is therefore cheaper to travel to the US, exchange for some dollars, and buy a Big Mac than to purchase the equivalent burger at home.
The same applies against the euro, with the krona being nearly 6% overvalued.
The dollar's weakening over the past six months has made the American currency undervalued against most Western currencies, according to the burger index. The Swiss franc is the most overvalued, with the burger being significantly more expensive relative to the actual exchange rate.