The End of Inflation

In this chapter, Pittaluga and Seghezza initially analyze the reasons for the delay in adopting the reforms necessary to end hyperinflation. In the authors’ view, this delay was mainly due to the fact that certain interest groups, primarily industrialists, benefited from the distributional effects of inflation. The acceptance of anti-inflationary measures by these groups was possible only when the costs of hyperinflation became excessively high for them as well. Unlike other economists, who trace the end of hyperinflation to the change in expectations resulting from the introduction of the Rentenmark, Pittaluga, and Seghezza attribute crucial importance to exchange rate stabilization. From this perspective, the end of German hyperinflation was the result of exchange rate-based disinflation and the costs of disinflation emerged not immediately, but over time.