Question
Just like the Big Mac Index, the Starbucks index has attempted to predict if a currency is undervalued or overvalued by comparing the latte prices
Just like the Big Mac Index, the Starbucks index has attempted to predict if a currency is undervalued or overvalued by comparing the latte prices and the actual exchange rates between countries.
Take the following observations:
| Country | Starbucks tall latte Price USD | Actual exchange rate (units of local currency that exchanges for 1 USD) |
| US | 4.30 | - |
| UK | 4.35 | 0.85 |
| Italy | 3.09 | 1.40 |
| France | 3.15 | 1.31 |
- Based on these observations, please verify which of the currencies are overvalued and which are undervalued relative to the USD. Find the PPP exchange rate for France.
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Introductory Econometrics A Modern Approach
Authors: Jeffrey Wooldridge
7th Edition
1337558869, 978-1337558860
