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Was a sudden stop at the origin of German hyperinflation?

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  • Seghezza, Elena
  • Morelli, Pierluigi

Abstract

Since the publication of Cagan's seminal contribution in 1956 and its further development by Sargent (1982) there has been a growing literature that seeks to explain German hyperinflation in terms of the monetary hypothesis. However, this article shows that the origins of this hyperinflation can be traced back to a sudden stop that occurred in the summer of 1922 at a time when expectations that the German economy would stabilise began to subside. The reversal of capital flows that took place in those months led in the short term to a dramatic depreciation of the mark, a significant increase in prices and a decline in output. This decline sparked bitter social conflict that fuelled a wage and price spiral. This spiral was accommodated by monetary authorities, leading in turn to explosive inflation.

Suggested Citation

  • Seghezza, Elena & Morelli, Pierluigi, 2020. "Was a sudden stop at the origin of German hyperinflation?," Financial History Review, Cambridge University Press, vol. 27(2), pages 161-186, August.
    • Handle: RePEc:cup:fihrev:v:27:y:2020:i:2:p:161-186_2
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