The Debt-Inflation Channel of the German (Hyper)Inflation

Author(s)
Brunnermeier, Markus; Correia, Sergio; Luck, Stephan; Verner, Emil; Zimmermann, Tom
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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 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. (JEL D22, E23, E31, G32, N14, N24)
Date issued
2025-07
URI
https://hdl.handle.net/1721.1/165648
Department
Sloan School of Management
Journal
American Economic Review
Publisher
American Economic Association
Citation
Brunnermeier, Markus, Sergio Correia, Stephan Luck, Emil Verner, and Tom Zimmermann. 2025. "The Debt-Inflation Channel of the German (Hyper) Inflation." American Economic Review 115 (7): 2111–50.
Version: Final published version
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