NATIONAL BUREAU OF ECONOMIC RESEARCH
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Capital Flows, Real Estate, and Local Cycles: Evidence from German Cities, Banks, and Firms

Peter Bednarek, Daniel Marcel te Kaat, Chang Ma, Alessandro Rebucci

NBER Working Paper No. 26820
Issued in March 2020
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics, Public Economics

We study how an aggregate bank 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 pressure grew 2.5-5.0 percentage points more than the least exposed ones, cumulatively, during the 2009-2014 period. Bank flow shocks shift credit to firms with more collateral. More collateral also leads firms to hire and invest more in response to these shocks.

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Document Object Identifier (DOI): 10.3386/w26820

 
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