Fiscal Populism and Monetary Policy

There is a saying in Spanish: get burned by hot milk, and the sight of a cow makes you cry. New research implies that, decades after a populist government leaves office, the central bank it once tried to control is still flinching.

Martín Uribe (Columbia) and Nicolás Magud (IMF) have investigated the long-run effect of populist governments that leaned on their central banks to print money and feed inflation. They find that these central banks raise interest rates more aggressively than others when inflation drifts above target, even decades later.

This is the second of four episodes drawn from papers commissioned for the second Economic Policy: Papers on European and Global Issues conference, organised by CEPR, CESifo and Sciences Po.

The research behind this episode:

Jácome, Luis, Nicolás E. Magud, Samuel Pienknagura, and Martín Uribe. 2026. "Fiscal Populism and Monetary Policy Rules." Conference draft, presented at the 2nd Economic Policy: Papers on European and Global Issues Conference, Venice, 19-20 June 2026. Forthcoming in Economic Policy.

To cite this episode:

Phillips, Tim, Martín Uribe, and Nicolás E. Magud. 2026. "Fiscal Populism and Monetary Policy." VoxTalks Economics (podcast).

About the guests

Martin Uribe is the Robert A. Mundell Professor of Economics at Columbia University and a Research Associate of the National Bureau of Economic Research. His research spans international macroeconomics and the theory of monetary and fiscal policy, with recent work on tariff shocks, fiscal dominance, and the long-run legacy of high inflation on how central banks set policy. He is editor-in-chief of the Journal of International Economics.

Nicolás E. Magud is a Senior Economist in the International Monetary Fund's Western Hemisphere Department. His research spans open-economy macroeconomics, with a focus on fiscal policy, exchange rates, capital flows, and capital controls, much of it drawn from Latin America's long experience of inflation and central bank reform.

Research cited in this episode

The populist leaders database. Funke, Manuel, Moritz Schularick, and Christoph Trebesch. 2023. "Populist Leaders and the Economy." American Economic Review 113 (12): 3249-88. The authors classify a leader as populist if their rhetoric splits society into "the people" against "the elites," then divide populists into left-wing, whose target is economic elites, and right-wing, whose target is foreigners and minorities. 

Deficit monetisation and "unpleasant monetarist arithmetic." Sargent, Thomas J., and Neil Wallace. 1981. "Some Unpleasant Monetarist Arithmetic." Federal Reserve Bank of Minneapolis Quarterly Review 5 (3). The paper that established the mechanism this episode turns on: when a government's deficit is financed by its own central bank printing money rather than by selling bonds to the public, the result is inflation. It gives the paper's account of populism and central bank credit its theoretical backbone.

Local projections difference-in-differences. Dube, Arindrajit, Daniele Girardi, Oscar Jorda , and Alan M. Taylor. 2025. "A Local Projections Approach to Difference-in-Differences." Journal of Applied Econometrics 40 (7): 741-58. The statistical method behind the paper's headline charts. It compares countries that have just installed a populist government against "clean" control countries with no recent populist history, tracking central bank credit year by year after the change of regime.

The Central Bank Independence Extended (CBIE) index. Romelli, Davide. 2022. "The Political Economy of Reforms in Central Bank Design: Evidence from a New Dataset." Economic Policy 37 (112): 641-88. A dataset scoring central bank laws on their independence, including limits on lending to government. The paper uses it to show that countries with a populist past, especially a left-wing one, now have stricter legal limits on central bank lending than countries with no such history.

Argentina, Chile, and Mexico. The paper's three historical case studies. In Argentina, governments from Perón onward repeatedly rewrote central bank law to permit financing of the treasury, contributing to repeated bouts of high inflation and, eventually, hyperinflation in the 1980s. In Chile, the Allende government printed money to fund an expansion of the state, and inflation reached roughly 600% in 1973 before the government was overthrown. In Mexico, President Echeverría's public investment drive in the 1970s was financed in part by the central bank, feeding an inflation and currency crisis that culminated in the country's 1982 default. Uribe and Magud point to these episodes as the historical template their statistical results describe.

Related reading on VoxEU

Central bank independence: An update, a VoxEU column in which Sylvester Eijffinger and Jakob de Haan argue that legal independence alone does not shield a central bank from political pressure to loosen policy.

Recent trends in central bank independence, in which Davide Romelli, whose index this paper uses to track legal independence, documents a fresh wave of reforms strengthening central banks worldwide since 2016.