Dollarization and Real Estate Market Performance: Evidence from Housing in El Salvador

Mauricio Rodriguez and Jonathan Dombrow

Journal of Housing Research, 2015, vol. 24, issue 1, 37-54

Abstract: Dollarization occurs when a country eschews its own currency in favor of a foreign currency. Dollarization offers potential benefits for real estate markets from lower and more stable inflation and interest rates. However, dollarization may reduce the advantage of real estate as an inflation hedge. Data from El Salvador is employed in the first empirical study of dollarization effects on housing. El Salvador experienced moderated inflation, but also slower economic growth after dollarization. Hedonic analysis indicates that dollarization depressed house prices when controlling for interest rates and economic growth. This new evidence refocuses the policy debate for countries considering dollarization.

Date: 2015
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DOI: 10.1080/10835547.2015.12092096

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