Dollar Funding and Housing Markets: The Role of non-US Global Banks

The Dollar exchange rate synchronizes house prices globally. When the dollar appreciates (depreciates), house prices rise (fall) globally. As the source of this comovement we identify the joint dependence of borrowing countries on US dollar lending from global banks headquartered outside the US. Unlike US banks, these banks’ refinancing conditions depend on the dollar exchange rate, with banks in countries for whose currencies it is more expensive to hedge being particularly exposed.