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Inflationary expectations during Germany's great slump

  • Hans Joachim Voth

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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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
Contact details of provider: Web page: http://www.econ.upf.edu/

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