Capital Flows, Real Estate, and Local Cycles: Evidence from German Cities, Banks, and Firms
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.
For comments and discussions, we are grateful to Alina Arefeva, Natalija Barasinska, Valeriya Dinger, Sebastian Doerr, Vadim Elenev, Giovanni Favara, Pedro Gete, Isaac Hacamo, Jia He, Zhiguo He, Mathias Hoffman, Deniz Igan, Yang Jiao, Matt Kahn, Sebnem Kalemli-Ozcan, Bo Li, Paula Margaretic, Daniel McMillen, Emi Nakamura, Luis Quintero, Vincenzo Quadrini, Tom Schmitz, Kilian Uber, Jerome Vandenbussche, Ko Wang, Cheng Xu, Jing Yang, Albert Zevelev, Sili Zhou, Tingyu Zhou. We also thank conference participants at the 2020 ASSA Meeting (IBEFA Session), 2019 ABFER Conference, 2019 AREUEA Annual National Meeting, 2019 AsRes Conference, the 2019 Autumn Forum on the Globalization of Real Estate Markets at the University of Zurich, the 1st FISF Real Estate Finance Workshop, the 2019 CCER Summer Institute, the 2019 CEPR AMCM conference, 2019 CEPR ESSIM, 2019 CICF, 2019 IMF Annual Macro-Financial Conference, 2019 Santiago Finance Workshop, as well as seminar participants at the Bundesbank, IMF, IWH Halle, Federal Reserve Board, and USC. Rebucci gratefully acknowledges the financial support of the Johns Hopkins Catalyst Award Program. The usual disclaimer applies. The views expressed in this paper do not reflect the ones of the Deutsche Bundesbank. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.