Heterodox
by George Dorgan
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Summary:
After the strong revaluation of the Swiss franc in recent years, some economists, like the ones at the Swiss National Bank (SNB), claim that the franc is overvalued. Many use misleading Purchasing Power Parity (PPP) measures like the Big Mac index, the OECD index or the PPP based on consumer prices for computing fair values. The second big mistake is to use the wrong base year and to assume, for example, that in 1999 the CHF was correctly valued. The third mistake is to ignore massive Swiss current account surpluses helped by immigration of highly qualified personnel and the subsequent reduction of unit labor costs. This last factor also implies that an evaluation of the balance of payments should take precedence against the partially misleading REER and PPP evaluations.
Topics:
George Dorgan considers the following as important: CHF, Featured, newsletter, overvaluation, PPI, self-fulfilling prophecy, Swiss Franc, tradables
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After the strong revaluation of the Swiss franc in recent years, some economists, like the ones at the Swiss National Bank (SNB), claim that the franc is overvalued. Many use misleading Purchasing Power Parity (PPP) measures like the Big Mac index, the OECD index or the PPP based on consumer prices for computing fair values. The second big mistake is to use the wrong base year and to assume, for example, that in 1999 the CHF was correctly valued. The third mistake is to ignore massive Swiss current account surpluses helped by immigration of highly qualified personnel and the subsequent reduction of unit labor costs. This last factor also implies that an evaluation of the balance of payments should take precedence against the partially misleading REER and PPP evaluations.After the strong revaluation of the Swiss franc in recent years, some economists, like the ones at the Swiss National Bank (SNB), claim that the franc is overvalued. Many use misleading Purchasing Power Parity (PPP) measures like the Big Mac index, the OECD index or the PPP based on consumer prices for computing fair values. The second big mistake is to use the wrong base year and to assume, for example, that in 1999 the CHF was correctly valued. The third mistake is to ignore massive Swiss current account surpluses helped by immigration of highly qualified personnel and the subsequent reduction of unit labor costs. This last factor also implies that an evaluation of the balance of payments should take precedence against the partially misleading REER and PPP evaluations.
Topics:
George Dorgan considers the following as important: CHF, Featured, newsletter, overvaluation, PPI, self-fulfilling prophecy, Swiss Franc, tradables
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