Money supply, exchange rates and office market dynamics: comparative evidence from the UK and Germany
| DOI | https://doi.org/10.1108/JPIF-03-2021-0025 |
| Published date | 16 November 2021 |
| Date | 16 November 2021 |
| Pages | 237-248 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Alain Coën,Benoit Lefebvre |
Money supply, exchange rates and
office market dynamics:
comparative evidence from the UK
and Germany
Alain Co€
en
Finance, Universit
eduQu
ebec
a Montr
eal, Montr
eal, Canada, and
Benoit Lefebvre
Research, BNP Paribas Real Estate, Paris, France
Abstract
Purpose –The aim of this study is to shed light on the relative importance of money supply and exchange
rates variations on office markets prices dynamics.
Design/methodology/approach –Using a parsimonious real estate asset pricing model, the authors focus
on the two biggest European office markets; namely the United Kingdom and Germany. The authors use a
panel approach based on a robust econometric methodology (GMM with correction errors-in-variables). The
authors take into account the variations of exchange rates and money supplies for the most important
currencies.
Findings –The results highlight the impact of money supplies and exchange rates on office prices after the
Global Financial Crisis. The authors report that the monetary policies in the UK and in Germany (Euro zone)
have had significant influences in the real estate sector after the Global Financial Crisis. However, the authors
identified significant differences between British and German office markets for the 2009–2019 period
regarding the impact of money supply and exchange rates variations on the office prices dynamics.
Practical implications –The results highlight the impact of money supplies and exchange rates on office
prices after the Global Financial Crisis. The detailed and exclusive database (composed of the main office
markets in the United Kingdom and in Germany) allows the authors to identify significant differences and
opportunities for investors.
Originality/value –The authors use a parsimonious model and apply a panel approach based on a robust
econometric methodology to analyse the impact of exchange rates and money supply variations on the office
prices dynamics. The detailed and exclusive database (composed of the main office markets in the United
Kingdom and in Germany) allows the authors to identify significant differences for investors.
Keywords Real estate, Office price dynamics, Money supply, Exchange rates, European markets, Panel
estimation
Paper type Research paper
1. Introduction
During and after the Global Financial Crisis (2008–2009), central banks shifted their policies
and introduced unconventional monetary measures that affected asset prices and investment
allocation. Following Co€
en et al. (2018), if we consider a simple Mundell (1963) and Fleming
(1962) framework for a small open economy with flexible exchange rate, when the money
supply increases, the interest rate goes down and net exports rise with an increase of overseas
investments. Offices, as per all asset classes, then become more attractive with lower interest
rates, and investment volumes are expected to rise. As real estate supply is quite inelastic in
the short term, these massive money injections may, in theory, inflate prices by increasing
demand.
In this study, we intend to compare the impact of two monetary policies, led by the two
leading central banks, on the dynamics of two important European office markets, namely
Money supply
and exchange
rates
variations
237
JEL Classification —E50, G11, R10, R30
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 13 March 2021
Revised 5 July 2021
Accepted 30 July 2021
Journal of Property Investment &
Finance
Vol. 40 No. 2, 2022
pp. 237-248
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-03-2021-0025
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