Abstract
We analyze the behavior of investors in the Berlin rental apartment house market over the years 1980–2004. Using constant-quality multipliers (price–rent ratios), we reject the hypothesis that multipliers in the market were set in a rational manner. Supported by narrative evidence, we conjecture that investors misjudged the economic effects of the German reunification. To examine this, we employ a stylized structural economic model and analyze the effects of shocks on rational multipliers. It seems that investors confused the reunification with a permanent supply side shock to the economy. By basing their investment decisions on this misjudgement, investors behaved irrationally, but in a very uncertain and unprecedented environment.
Original language | English |
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Pages (from-to) | 465-486 |
Number of pages | 22 |
Journal | German Economic Review |
Volume | 11 |
Issue number | 4 |
Early online date | 23 Nov 2009 |
DOIs | |
Publication status | Published - Nov 2010 |
Keywords
- Berlin
- rental housing market
- small macroeconomic model