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On Thursday, March 23, Emil Verner joined Markus’ Academy for a lecture on The Debt-Inflation Channel of the German Hyperinflation. Verner is the Class of 1957 Career Development Professor and an Assistant Professor of Finance at MIT Sloan.

Watch the full presentation below. You can also watch all Markus’ Academy webinars on the Princeton BCF YouTube channel.


[0:00] Introduction

[4:49] Motivation: how does inflation transmit to the real economy? 

[17:23] Historical background

[32:36] Newly digitized firm-level data

[46:35] The evidence of the debt-inflation channel 

[1:00:50] Key takeaways


  • The German inflation of 1919-1923 is a key event in monetary history. From a value of 4.2 marks per dollar on the eve of World War I, the mark depreciated to 4.2 trillion marks per dollar by November 1923. 
  • It is a case study to understand how a large inflationary shock is transmitted to the real economy through a “debt-inflation” channel. With long-term nominal debt contracts, unexpected inflation can redistribute wealth from creditors to debtors. If firms are financially constrained, such wealth redistribution can affect real economic activity, even when wages and prices are fully flexible.
  • Newly digitized firm-level data reveals a significant decline in the bankruptcies and leverage of nonfinancial firms during the inflation. Firms that have more nominal liabilities at the onset of the inflation become more valuable in the stock market, face lower interest payments, and increase their employment once the inflation starts.

You can also download the full summary