After the First World War, Europe had lost its unrivalled economic hegemony over the rest of the world. The very fundament of the world economy, which supposedly had given stability over all the years, namely the gold standard, had practically disappeared. Except for the US Dollar, major currencies were no more backed by gold. During the years of 1914 - 1918, the European great powers had to give up the gold standard to be able to finance the cost of war. This was done mostly by printing large sums of money and by uncontrolled borrowing. The reluctance of the governments to levy higher taxes made short- and long-term debt enormous. After the Great War public expenditure rose even more in most countries due to the reparation and reconstruction costs. The unavoidable consequence (in absence of a restrictive monetary policy) was inflation. This essay is going to describe what happened to those states which experienced hyperinflation and how the abrupt end of it can be explained in terms of the Rational Expectations Hypothesis.
Inhaltsverzeichnis (Table of Contents)
- INTRODUCTION
- THE CAUSES FOR HYPERINFLATION
- RATIONAL EXPECTATIONS HYPOTHESIS
- FACTORS THAT ENDED HYPERINFLATION
- CAN THE REH EXPLAIN THE END OF HYPERINFLATION?
- CONCLUSION
- FIGURES
- BIBLIOGRAPHY
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay examines the factors that ended hyperinflation in Europe during the 1920s and analyzes whether the Rational Expectations Hypothesis (REH) can adequately explain this phenomenon. It delves into the causes of hyperinflation, focusing on the impact of World War I and its aftermath on European economies.
- The causes of hyperinflation in post-World War I Europe
- The impact of government policies on inflation
- The role of the gold standard in economic stability
- The Rational Expectations Hypothesis (REH) and its application to hyperinflation
- The influence of international institutions in ending hyperinflation
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter provides an overview of the economic conditions in Europe following World War I, emphasizing the breakdown of the gold standard and the subsequent rise of inflation. It introduces the Rational Expectations Hypothesis (REH) as a potential explanation for the end of hyperinflation.
- The Causes for Hyperinflation: This chapter delves into the primary causes of hyperinflation, highlighting the role of high budget deficits, uncontrolled money printing, and country-specific factors such as border changes and supply shortages. It also analyzes the impact of government policies on inflation rates.
- Rational Expectations Hypothesis: This chapter outlines the theory of Rational Expectations, explaining how economic agents forecast future events and how this relates to government policies. It contrasts the REH with the adaptive expectations model.
- Factors that Ended Hyperinflation: This chapter explores the specific factors that led to the stabilization of hyperinflation in various European countries. It examines the case of Austria, highlighting the role of international intervention and the implementation of a new independent central bank.
Schlüsselwörter (Keywords)
Hyperinflation, Rational Expectations Hypothesis (REH), gold standard, World War I, European economies, budget deficits, monetary policy, fiscal policy, international institutions, central banking, Austria, Germany, Hungary, Poland, post-war reconstruction, reparations, inflation rates, economic stability.
- Quote paper
- Arturo Minet (Author), 2006, The 1920´s hyperinflation in the light of the Rational Expectations Hypothesis, Munich, GRIN Verlag, https://www.grin.com/document/77363
