Germany’s social contract, its “social market economy” for the past seven decades, has aimed at spreading wealth and providing a broad social safety net for all groups of society. Yet a defining feature of Germany’s new economy has been the sharp increase in inequality.

The causes of the 2008 collapse and subsequent surge in global capital flows remain an open and highly controversial issue. Employing a factor model coupled with a dataset of high-frequency portfolio capital flows to 50 economies, the paper finds that common shocks - key crisis events as well as...