Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180328
Authors: 
Lopez, Jose A.
Mitchener, Kris James
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7066
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.
Subjects: 
hyperinflation
uncertainty
exchange rates
prices
reparations
JEL: 
E31
E63
F31
F33
F41
F51
G15
N14
Document Type: 
Working Paper

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