Inflationary expectations during Germany's great slump

Hans-Joachim Voth

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Was the German slump inevitable? This paper argues that -despite the speed and depth of Germany's deflation in the early 1930s - fear of inflation is evident in the bond, foreign exchange, and commodity markets at certain critical junctures of the Great Depression. Therefore, policy options were more limited than many subsequent critics of Brüning's policies have been prepared to admit. Using a rational expectations framework, we find strong evidence from the bond market to suggest fear of inflation. Futures prices also reveal that market participants were betting on price increases. These findings are discussed in the context of reparations and related to the need for a regime shift to overcome the crisis.

Keywords: Inflation; great depression; rational expectations; uncertainty; monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E43 E44 N14 N24 (search for similar items in EconPapers)
Date: 1998-11
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:333

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