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German hyperinflation

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Abstract

German hyperinflation after the First World War originated in the decision of July/August 1914 to suspend the gold convertibility of the mark and associated gold-reserve requirements. As with other hyperinflations, this one was irregular. German wholesale prices slightly more than doubled during the First World War. By February 1920 the ratio to 1913 prices was about 17, but then fell, irregularly, to a ratio of 13 in May 1921. After May 1921 inflation resumed and between then and June 1922 average monthly inflation was 13.5 per cent; in the following 12 months it reached 60 per cent (including a short cessation in early 1923 as the Reichsbank temporarily pegged the exchange rate), and 32,700 per cent or about 20 per cent per day between June and November 1923. The mark was stabilized in later November 1923 at one million millionth of its 1913 dollar exchange rate. Although only the period from June 1922 was ‘hyperinflationary’ (above 50 per cent per month), this period cannot be studied independently of the preceding inflationary history (Holtfrerich, 1986).

Keywords

  • Exchange Rate
  • Monetary Policy
  • Rational Expectation
  • Quantity Theory
  • Dollar Exchange Rate

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Balderston, T. (2010). German hyperinflation. In: Durlauf, S.N., Blume, L.E. (eds) Monetary Economics. The New Palgrave Economics Collection. Palgrave Macmillan, London. https://doi.org/10.1057/9780230280854_11

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