MERIT-Infonomics Research Memorandum series Economic stagnation in Weimar Germany: A structuralist perspective

Mexico and Argentina in the 1990s as well as Weimar Germany in the 1920s implemented similar exchange-rate-based stabilization programs which were successful in stopping inflation, but failed to generate the domestic savings and investment rates necessary for a sustainable growth path. It is argued that in both cases substantial foreign capital inflows were attracted by a stable nominal exchange rate and high interest rates, which alleviated the distributional struggle driving high inflation. However, this incentive structure caused a profit squeeze in the tradable goods sector due to an appreciating real exchange rate precipitating the ultimate collapse of the programs. Acknowledgements: This research was supported by a Mare Curie fellowship of the European Commission Programme Improving Human Research Potential and the Socio-economic Knowledge base under contract No HPMF-CT-2000-00687. Financial support from the Center for Economic Policy Analysis, New School University, is also gratefully acknowledged. I would like to thank Carlos Bastos, Ute Pieper, Lance Taylor and two anonymous referees for comments on an earlier version of this paper. My special thanks to Albrecht Ritschl for providing unpublished data. The usual caveats apply. Thorsten H. Block MERIT, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands, email: [email protected].