Uncertainty and Hyperinflation: European Inflation Dynamics after World War I

51 Pages Posted: 25 May 2018 Last revised: 14 Apr 2023

See all articles by Jose A. Lopez

Jose A. Lopez

Federal Reserve Bank of San Francisco

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department; National Bureau of Economic Research (NBER); CEPR; CAGE; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2018

Abstract

Fiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was instrumental in pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland, and Hungary (GAPH) suffered from frequent uncertainty shocks – and correspondingly high levels of uncertainty – caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt, and border disputes. In contrast, other European countries exhibited lower levels of measured uncertainty between 1919 and 1925, allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterward in GAPH, but this effect was absent or much more limited for the other European countries in our sample. Our results suggest that elevated economic uncertainty directly affected inflation dynamics and the incidence of hyperinflation during the interwar period.

Suggested Citation

Lopez, Jose Antonio and Mitchener, Kris James, Uncertainty and Hyperinflation: European Inflation Dynamics after World War I (May 2018). NBER Working Paper No. w24624, Available at SSRN: https://ssrn.com/abstract=3182221

Jose Antonio Lopez (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-977-3894 (Phone)
415-974-2168 (Fax)

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
408.554.4340 (Phone)
408.554.2331 (Fax)

HOME PAGE: http://lsb.scu.edu/~kmitchener/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CEPR ( email )

London
United Kingdom

CAGE ( email )

Premier Business Centre
47-49 Park Royal Road
London, NW10 7LQ
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
31
Abstract Views
451
PlumX Metrics