Let's pretend Jersey had an independent currency and then
calculate its position on the Economist's Big Mac Index
Big Mac Index is a simple indicator or rough estimate
illustrating the theory of
purchasing-power parity (PPP) since the Big Mac hamburger is consistently
available in 120 countries . The PPP theory
is based on the law of one price, that is to say that in an
efficient market identical goods should have one price.
Using the last published Index on July 2nd, 2007, this is how Jersey would
appear with a Big Mac priced locally at £2.10, mainland UK remains £1.99.
||Big Mac prices
||Implied PPP of the dollar
||Actual dollar exchange rate
||Under (-)/over(+) valuation
against the dollar %
in local currency
|Jersey, Channel Islands
Thus, it suggests that the Jersey Pound (JEP) is 24% overvalued against to US
dollar. However, the Jersey Pound is in currency union with the United Kingdom;
it's not an independent currency, but a variant of the British Pound.
Therefore, I believe the Big Mac index is reflecting Jersey's higher input costs
(rent, wages, transport costs) relative to the mainland UK.
What do you think?
§ - Dollars per pound
 Twenty Years of the Big Mac index, Economist.com, May 25, 2006.
 The Jersey Pound,
http://en.wikipedia.org/wiki/Jersey_pound, 10 November 2007
 Purchasing Power Parity,
http://en.wikipedia.org/wiki/Purchasing_power_parity, 10 November 2007.