Inflation Expectations and the Recovery from the Great Depression in Germany

Abstract

A regime shift toward increased inflation expectations is credited with jump-starting the recov- ery from the Great Depression in the United States. What role did inflation expectations play in Germany that experienced a similarly successful economic upturn in the 1930s? We study infla- tion expectations in the German recovery across several methods: we conduct a narrative study of media sources; we estimate inflation expectations from a factor-augmented vector autoregres- sion model, real interest rate forecasts, and quantitative news series. Consistently across these approaches, we do not find a shift to increased expected inflation. This recovery was different, and its causes lie elsewhere.