The Debt-Inflation Channel of the German (Hyper-)Inflation
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arXiv
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| Main Authors: | , , , , |
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| Format: | Preprint |
| Published: |
2024
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| _version_ | 1866914038877782016 |
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| author | Brunnermeier, Markus K. Correia, Sergio Luck, Stephan Verner, Emil Zimmermann, Tom |
| author_facet | Brunnermeier, Markus K. Correia, Sergio Luck, Stephan Verner, Emil Zimmermann, Tom |
| contents | This paper studies how a large increase in the price level is transmitted to the real economy through firm balance sheets. Using newly digitized macro- and micro-level data from the German inflation of 1919-1923, we show that inflation led to a large reduction in real debt burdens and bankruptcies. Firms with higher nominal liabilities at the onset of inflation experienced a larger decline in interest expenses, a relative increase in their equity values, and higher employment during the inflation. The results are consistent with real effects of a debt-inflation channel that operates even when prices and wages are flexible. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2405_13296 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | The Debt-Inflation Channel of the German (Hyper-)Inflation Brunnermeier, Markus K. Correia, Sergio Luck, Stephan Verner, Emil Zimmermann, Tom General Economics Economics This paper studies how a large increase in the price level is transmitted to the real economy through firm balance sheets. Using newly digitized macro- and micro-level data from the German inflation of 1919-1923, we show that inflation led to a large reduction in real debt burdens and bankruptcies. Firms with higher nominal liabilities at the onset of inflation experienced a larger decline in interest expenses, a relative increase in their equity values, and higher employment during the inflation. The results are consistent with real effects of a debt-inflation channel that operates even when prices and wages are flexible. |
| title | The Debt-Inflation Channel of the German (Hyper-)Inflation |
| topic | General Economics Economics |
| url | https://arxiv.org/abs/2405.13296 |