The Debt-Inflation Channel of the German (Hyper-)Inflation

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

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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.

Date: 2024-05
New Economics Papers: this item is included in nep-ban, nep-his and nep-mon
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http://arxiv.org/pdf/2405.13296 Latest version (application/pdf)

Related works:
Working Paper: The Debt-Inflation Channel of the German Hyperinflation (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2405.13296

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