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Open Economy Aspects of the Currency Depreciation in Germany After World War I: Conflicting Claims and Vicious Circles

In: Distributional Conflict and Inflation

Author

Listed:
  • Richard C. K. Burdekin

    (Claremont McKenna College)

  • Paul Burkett

    (Indiana State University)

Abstract

As discussed in Chapter 4, the fiscal-monetary approach – exemplified perhaps by Sargent (1993, Chapter 3) – emphasizes the importance of the government’s resort to the ‘inflation tax’ as a means of funding its expenditures. Under this approach, the impact of rising (current and prospective) government deficits on expected money supply growth is considered the primary causal factor in the hyperinflation process – with successful stabilization depending upon monetary reforms that insulate the central bank from government credit demands. On the other hand, the inflationary process at work in Germany may also have featured a ‘vicious circle’ process whereby successive rounds of price and wage increases make the currency – and exchange rate – depreciation self-sustaining in the short run. That is, initial depreciation can lead to higher import prices and demands for higher nominal wages, in turn giving rise to further currency depreciation (see, for example, Robinson, 1938, p.508).

Suggested Citation

  • Richard C. K. Burdekin & Paul Burkett, 1996. "Open Economy Aspects of the Currency Depreciation in Germany After World War I: Conflicting Claims and Vicious Circles," Palgrave Macmillan Books, in: Distributional Conflict and Inflation, chapter 8, pages 165-174, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37173-6_9
    DOI: 10.1057/9780230371736_9
    as

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