Was There a Sudden Stop at the Root of German Hyperinflation?

In this chapter, Pittaluga and Seghezza initially outline the different explanations of hyperinflation. They show how, since Cagan’s seminal 1956 paper, the monetarist interpretation has become widely accepted. The authors, however, stress the need of distinguishing between the origin of hyperinflation and its consolidation. In fact, the origin of the pronounced acceleration of the price growth that occurred in the summer of 1922 should be traced to a sudden stop occurred after the assassination of Rathenau when many foreign investors became convinced that their expectations of a revaluation of mark were no longer reasonable and withdrew their capital. The high level of “imported” inflation, resulting from the depreciation of mark, encouraged an increase in wages provoking an explosive spiral of exchange rates, wages, and prices.