jats:titleAbstract</jats:title>jats:pThis contribution attempts to provide theoretical propositions and empirical evidence on the ‘obscure’ relationship between current account imbalances and house prices. We propose a theoretical framework, which studies the interaction between house prices and current account imbalances and also pays special attention to the role played by fiscal and monetary policies. In a second stage of this contribution, our theoretical framework is estimated empirically by using data from 17 OECD economies, which spans the period 1970–2013. In doing so, the least squares technique with breakpoints is employed. Copyright © 2015 John Wiley & Sons, Ltd.</jats:p>