HYPERINFLATION, THE EXCHANGE-RATE AND ENDOGENOUS MONEY - POST-WORLD-WAR-I GERMANY REVISITED

We re-examine the interaction of domestic and external factors in the German hyperinflation by extending Frenkel's monetary model of the exc hange rate to incorporate: (1) endogeneity of the money supply with re spect to government debt, expected inflation and money wages; (2) the direct impact of exchange rate depreciation on the domestic price leve l; and (3) endogenous wage determination. Four-equation estimates supp ort each extension of the monetary model. It appears that government d eficit finance, the collapse of the exchange rate and the monetary tra nsmission of the wage-price spiral were all crucial contributors to th e price explosion. (JEL E31, N14, F41). Copyright (C) 1996 Elsevier Sc ience Ltd