Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of San Francisco
Working Paper Series
Uncertainty and Hyperinflation: European Inflation Dynamics after World War I
Jose A. Lopez
Kris James Mitchener
Abstract

Fiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was instrumental in pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland, and Hungary (GAPH) suffered from frequent uncertainty shocks – and correspondingly high levels of uncertainty – caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt, and border disputes. In contrast, other European countries exhibited lower levels of measured uncertainty between 1919 and 1925, allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterward in GAPH, but this effect was absent or much more limited for the other European countries in our sample. Our results suggest that elevated economic uncertainty directly affected inflation dynamics and the incidence of hyperinflation during the interwar period.


Download Full text
Cite this item
Jose A. Lopez & Kris James Mitchener, Uncertainty and Hyperinflation: European Inflation Dynamics after World War I, Federal Reserve Bank of San Francisco, Working Paper Series 2018-6, 09 May 2018.
More from this series
JEL Classification:
Subject headings:
DOI: 10.24148/wp2018-06
For corrections, contact Federal Reserve Bank of San Francisco Research Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal