Disinflation, fiscal sustainability, and labor market adjustment in Turkey

Pierre-Richard Agénor (), Henning Tarp Jensen, Mathew Verghis and Erinc Yeldan ()

No 3804, Policy Research Working Paper Series from The World Bank

Abstract: This paper analyzes the effects of monetary policy and fiscal adjustment on output and unemployment in Turkey. The model on which the analysis is based accounts for rural-urban migration, a large urban informal sector, flexible exchange rates, a dollarized banking system, and interactions between default risk on government liabilities, credibility, and inflation expectations. The short- and long-run effects of a rise in official interest rates and tax increases are analyzed. The results highlight the importance of accounting for the link between default risk and credibility in understanding the real and financial effects of macroeconomic adjustment.

Keywords: Labor Markets; Economic Theory&Research; Banks&Banking Reform; Public Sector Economics&Finance; Economic Stabilization (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cwa and nep-mac
Date: 2006-01-01
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