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

Alessandro Rebucci (arebucci@jhu.edu), Peter Bednarek (peter.bednarek@bundesbank.de), Daniel te Kaat and Chang Ma

No 14187, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Capital flows and real estate are pro-cyclical, and real estate has a substantial weight in economies’ income and wealth. In this paper, we study the role of real estate markets in the transmission of bank flow shocks to output growth across German cities. The empirical analysis relies on a new and unique matched data set at the city level and the bank-firm level. To measure bank flow shocks, we show that changes in sovereign spreads of Southern European countries (the so-called GIPS spread) can predict German cross-border bank flows. To achieve identification by geographic variation, in addition to a traditional supply-side variable, we use a novel instrument that exploits a policy assigning refugee immigrants to municipalities on an exogenous basis. We find that output growth responds more to bank flow shocks in cities that are more exposed to tightness in local real estate markets. We estimate that, during the 2009-2014 period, for every 100-basis point increase in the GIPS spread, the most exposed cities grow 15-25 basis points more than the least exposed ones. Moreover, the differential response of commercial property prices can explain most of this growth differential. When we unpack the transmission mechanism by using matched bank-firm-level data on credit, employment, capital expenditure and TFP, we find that firm real estate collateral as measured by tangible fixed assets plays a critical role. In particular, bank flow shocks increase the credit supply to firms and sectors with more real estate collateral. Higher credit supply then leads firms to hire and invest more, without evidence of capital misallocation.

Keywords: Business cycles; Capital flows; Cities; Real estate (search for similar items in EconPapers)
JEL-codes: E3 F3 R3 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://cepr.org/publications/DP14187 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Capital Flows, Real Estate, and Local Cycles:Evidence from German Cities, Banks, and Firms (2021)
Working Paper: Capital Flows, Real Estate, and Local Cycles: Evidence from German Cities, Banks, and Firms (2020)
Working Paper: Capital flows, real estate, and local cycles: Evidence from German cities, banks, and firms (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14187

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14187
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).