òòò½Íø Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Debt-Inflation Channel of the German (Hyper) Inflation
òòò½Íø Review
vol. 115,
no. 7, July 2025
(pp. 2111–50)
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.Citation
Brunnermeier, Markus, Sergio Correia, Stephan Luck, Emil Verner, and Tom Zimmermann. 2025. "The Debt-Inflation Channel of the German (Hyper) Inflation." òòò½Íø Review 115 (7): 2111–50. DOI: 10.1257/aer.20230685Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- N14 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Europe: 1913-
- N24 Economic History: Financial Markets and Institutions: Europe: 1913-