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Inflationary expectations during Germany's great slump

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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.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 333.

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Date of creation: Nov 1998
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Handle: RePEc:upf:upfgen:333

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Web page: http://www.econ.upf.edu/

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Keywords: Inflation; great depression; rational expectations; uncertainty; monetary policy;

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Cited by:
  1. Markus Baltzer & Gerhard Kling, 2007. "Predictability of future economic growth and the credibility of monetary regimes in Germany, 1870-2003," Applied Economics Letters, Taylor & Francis Journals, vol. 14(6), pages 401-404.

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