Capital Flows, Real Estate, and Local Cycles: Evidence from German Cities, Banks, and Firms

69 Pages Posted: 2 Jan 2020 Last revised: 20 Nov 2020

See all articles by Peter Bednarek

Peter Bednarek

Deutsche Bundesbank

Daniel te Kaat

University of Groningen

Chang Ma

Fudan University - Fanhai International School of Finance (FISF)

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: December 9, 2019

Abstract

We study how a capital flow shock impacts German cities’ GDP growth depending on the state of their local real estate markets. Identification exploits a policy framework assigning refugees to cities on a quasi-random basis and variation in non-developable area for the construction of a measure of exposure to local real estate market tightness. We estimate that the German cities most exposed to real estate market tightness grew at least 1.9 percentage points more than the least exposed ones, cumulatively, during the 2009-2014 period. Capital inflows shift credit to firms with more collateral. More collateral also leads firms to hire and invest more in response to these shocks.

Keywords: Cross-border Flows, Capital Flows, Collateral, City Business Cycles, Credit, Germany, GIPS Spread, Real Estate, Tangible Assets

JEL Classification: F3, R3, E3

Suggested Citation

Bednarek, Peter and te Kaat, Daniel and Ma, Chang and Rebucci, Alessandro, Capital Flows, Real Estate, and Local Cycles: Evidence from German Cities, Banks, and Firms (December 9, 2019). Available at SSRN: https://ssrn.com/abstract=3500982 or http://dx.doi.org/10.2139/ssrn.3500982

Peter Bednarek

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
004969 9566-8972 (Phone)

HOME PAGE: http://www.bundesbank.de

Daniel Te Kaat (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Chang Ma

Fudan University - Fanhai International School of Finance (FISF) ( email )

China

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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