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Inflation Expectations and the Recovery from the Great Depression in Germany

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Volker Daniel, Lucas ter Steege

Berlin: HU Berlin, 2018, 45 S.
(Working Papers of the Priority Programme 1859 "Experience and Expectation: Historical Foundations of Economic Behaviour" ; 6)


A regime shift towards increased in inflation expectations is credited with jumpstarting the recovery from the Great Depression in the United States. Germany experienced a recovery as fast and strong in the 1930s. What role did inflation expectations play at the start of this remarkable economic upturn? To answer this question, we study inflation expectations in Germany across two different methods: we conduct a narrative study of media sources and estimate inflation expectations from a FAVAR model. Consistently across these approaches, we do not find a shift to increased expected inflation. This recovery was different, and its causes lie elsewhere.

JEL-Classification: E31;E32;E37;E12;N14;D84
Keywords: Inflation Expectations, Great Depression, Inflation Forecasting, Regime Change, Germany, Narrative Evidence
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