The Debt-Inflation Channel of the German Hyperinflation

90 Pages Posted: 30 Dec 2022 Last revised: 26 May 2023

See all articles by Markus K. Brunnermeier

Markus K. Brunnermeier

Princeton University - Department of Economics

Sergio Correia

Board of Governors of the Federal Reserve System

Stephan Luck

Federal Reserve Bank of New York

Emil Verner

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Tom Zimmermann

University of Cologne

Multiple version iconThere are 2 versions of this paper

Date Written: December 15, 2022

Abstract

This paper studies how a large increase in the price level is transmitted to the real economy through firm balance sheets. Using newly digitized macro- and micro-level data from the German inflation of 1919-1923, we show that inflation led to a large reduction in real debt burdens and bankruptcies. Firms with higher nominal liabilities at the onset of inflation experienced a larger decline in interest expenses, a relative increase in their equity values, and higher employment during the inflation. The results are consistent with real effects of a debt-inflation channel that operates even when prices and wages are flexible.

Keywords: Inflation, macro-finance, macroeconomics, financial frictions, hyperinflation, economic history

JEL Classification: E01, E40, E50, G00, G20, G30

Suggested Citation

Brunnermeier, Markus Konrad and Correia, Sergio and Luck, Stephan and Verner, Emil and Zimmermann, Tom, The Debt-Inflation Channel of the German Hyperinflation (December 15, 2022). Available at SSRN: https://ssrn.com/abstract=4303537 or http://dx.doi.org/10.2139/ssrn.4303537

Markus Konrad Brunnermeier

Princeton University - Department of Economics ( email )

Bendheim Center for Finance
Princeton, NJ
United States
609-258-4050 (Phone)
609-258-0771 (Fax)

HOME PAGE: http://www.princeton.edu/¡­markus

Sergio Correia

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Stephan Luck (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Emil Verner

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Tom Zimmermann

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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

Paper statistics

Downloads
1,274
Abstract Views
4,065
Rank
28,938
PlumX Metrics