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Inflation and Currency Depreciation in Germany, 1920-1923: A Dynamic Model of Prices and the Exchange Rate

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  • Tullio, Giuseppe

Abstract

This paper presents a dynamic model of the German hyperinflation, explaining prices, the exchange rate and the money supply. In the model estimated simultaneously, the nominal exchange rate is allowed to diverge from Purchasing Power Parity in the short run, the monetary approach to exchange rate determination and the quantity theory of money are assumed to be valid in the long run, the dynamic adjustment of prices and the exchange rate to monetary disturbances is made explicit, and currency substitution between domestic and foreign currency is introduced explicitly. The problem of the autocorrelation of the residuals of the money demand function found in previous studies is resolved, the fit of inflation and exchange rate changes is very satisfactory, and the speed of adjustment of the exchange rate to monetary disturbances is found to be much higher than for prices. Copyright 1995 by Ohio State University Press.

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  • Tullio, Giuseppe, 1995. "Inflation and Currency Depreciation in Germany, 1920-1923: A Dynamic Model of Prices and the Exchange Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 350-362, May.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:350-62
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    Cited by:

    1. Burdekin, Richard C. K. & Burkett, Paul, 1996. "Hyperinflation, the exchange rate and endogenous money: post-World War I Germany revisited," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 599-621, August.
    2. Evdokimova, Tatyana (Евдокимова, Татьяна) & Nevskiy, Sergey (Невский, Сергей), 2016. "Institutional Reforms and Economic Policy of the Cabinets of the Weimar Republic in the 1919–1924s [Институциональные Реформы И Экономическая Политика Кабинетов Веймарской Республики В 1919–1924 Го," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 176-208, June.

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