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Did High Wages or High Interest Rates Bring Down the Weimar Republic? A Cointegration Model of Investment in Germany, 1925–1930

  • Hans-Joachim Voth (a1)


This article offers a new interpretation of the low level of investment in Germany during the interwar period. Earlier contributions attributed 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 investment. Counterfactual simulations demonstrate that lower wages would have lowered investment still further and that high interest rates acted as the main brake on investment during the second half of the 1920s.



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The Journal of Economic History
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