The Debt-Inflation Channel of the German (Hyper-)Inflation
General Economics
2025-09-17 v1 Economics
Abstract
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.
Keywords
Cite
@article{arxiv.2405.13296,
title = {The Debt-Inflation Channel of the German (Hyper-)Inflation},
author = {Markus K. Brunnermeier and Sergio Correia and Stephan Luck and Emil Verner and Tom Zimmermann},
journal= {arXiv preprint arXiv:2405.13296},
year = {2025}
}