This study examines whether dollarization can mitigate the negative macroeconomic impact of populist policies. We initially consider this question using a cross-country dataset that includes many countries. The results from System Generalized Method of Moments (GMM) and staggered Difference-in-Differences (DiD) estimation point to dollarization’s mitigating effect on populist policies. However, some complications in the data induce noise and make our estimates less precise. As a follow-up, we present a series of theoretical and empirical approaches to test our hypothesis within a case study comparing Argentina and Ecuador. Both countries adopted similar populist policies almost simultaneously under different currency regimes: the former with its own currency and the latter having the dollar as legal tender. These results consistently suggest that the adverse macroeconomic effects of populism are less severe under official dollarization, highlighting an important potential benefit of this currency regime for countries that are incapable of establishing and/or maintaining their central bank independence.

Acceder al documento: https://www.sciencedirect.com/science/article/abs/pii/S0305750X26000914