DID HIGH WAGES OR HIGH INTEREST-RATES BRING DOWN THE WEIMAR-REPUBLIC - A COINTEGRATION MODEL OF INVESTMENT IN GERMANY, 1925-1930

This article offers a new interpretation of the low level of investmen t in Germany during the interwar period. Earlier contributions attribu ted the slow expansion of capital stock either to excessive wages due to state intervention and unionization or to the high cost of capital. These hypotheses are tested by estimating a cointegration model of in vestment. Counterfactual simulations demonstrate that lower wages woul d have lowered investment still further and that high interest rates a cted as the main brake on investment during the second half of the 192 0s.