Uncertainty and Hyperinflation: European Inflation Dynamics after World War I

Abstract

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.JEL Codes: E31, E63, F31, F33, F41, F51, G15, N14

Research on the Impact of Sources of Government Expenditure on Social Economy

“…Countries such as Germany experienced hyperinflation during and after World War I. [34] Other disadvantages of unlimited government borrowing include market inefficiency and bureaucracy. Cochrane (2011) argues that government spending programs as a tool for economic stimulus often suffer from inefficiencies, bureaucracy, and misallocation of resources, which can hinder economic growth.…”

“…The Zimbabwean case is a cautionary example of the detrimental effects of excessive money creation without prudence, but it is not the only case. Countries such as Germany experienced hyperinflation during and after World War I [34].…”

Az infláció nem monetáris kezelése az EU országaiban

“…világháború fejleményei -igazolják, hogy a háború inflatorikus hatással jár. Ez nemcsak a háborúban álló feleket, hanem a kívülálló országokat is érinti (Lopez, 2018;Caldara et al, 2022). A háború -csakúgy, mint a járvány okán szükségessé váló lezárások -az országok egymástól való függetlenedésére irányuló törekvéseket erősíti, és általános bizalomvesztéshez vezet.…”

“…Elemzésünk alapján továbbra is érvényesek azok a történelmi tapasztalatok, amelyek szerint a háború inflatorikus hatása nemcsak a háborúban álló feleket, de a kívülálló országokat is érinti (Lopez, 2018;Caldara et al, 2022). Ez a megosztottság és a kínálati láncok definíció szerinti töredezése miatt a globalizáció kedvező dezinflációs hatásainak fokozatos eliminálódását eredményezte (Rogoff, 2022).…”

Short Waves in Hungary, 1923 and 1946: Persistence, Chaos, and (Lack of) Control

“…After a brief experiment with communism, Admiral Miklos Horthy was appointed regent of the newly-independent country by the National Assembly in 1920, where he was to remain until 1944. Weathering communist insurrection, external strife and disputes with Austria over borders, dealing with the loss of much of its pre-war territory and a far-weakened industrial base, enduring two abortive coups by former emperor Charles IV, and continuously threatening its neighbors (who then allied against the country), Hungary was a weak administrative state in search of some form of economic strength (Lopez and Mitchener 2018). Failing to find this strength in domestic coalitions and consensus and lacking an environment in which effective economic institutions could develop, Hungary applied to join the League of Nations in 1922 and was unanimously approved (Peterecz 2013).…”