The Debt-Inflation Channel of the German Hyperinflation

Markus Brunnermeier, Sergio Correia, Stephan Luck, Emil Verner and Tom Zimmermann

No 31298, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E31 G0 G20 G30 N2 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-his and nep-mon
Note: CF DAE EFG ME
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Related works:
Working Paper: The Debt-Inflation Channel of the German (Hyper-)Inflation (2024)
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