Hyperinflation: on the Centennial of the German Experience of the 1920s, a Look Back
To mark the centenary of the German hyperinflation of 1920-1923, this article reviews the way in which macroeconomic analysis has been able to understand the phenomenon of hyperinflation. It reviews the main mechanisms that theory has identified as being at work behind the genesis, development, and end of the hyperinflationary process. The almost perfect example of German hyperinflation under the Weimar Republic is then used to illustrate these mechanisms.
Hyperinflation is a rare phenomenon. Before the First World War, only three episodes were documented: the assignats period during the French Revolution, the period of the American War of Independence, and the US Civil War (Capie, 1991). However, the period between the two world wars saw the development of hyperinflation in Austria, Germany, Hungary, and Russia. These were the phenomena studied by Cagan (1956) in his seminal article on hyperinflation theory. After the Second World War, no notable cases appeared between 1947 and 1984, but Hanke and Kruz (2012) counted forty-one episodes between 1984 and 2012.Identifying hyperinflation poses the problem of how to define it. Cagan (1956) defined hyperinflation as an inflation rate of 50% per month, or 12,875% per year, but the threshold envisaged by Dornbusch et al. (1990) was more modest…