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Disinflation, fiscal sustainability, and labor market adjustment in Turkey

Author

Listed:
  • Agenor, Pierre-Richard
  • Jensen, Henning Tarp
  • Verghis, Mathew
  • Yeldan, Erinc

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.

Suggested Citation

  • Agenor, Pierre-Richard & Jensen, Henning Tarp & Verghis, Mathew & Yeldan, Erinc, 2006. "Disinflation, fiscal sustainability, and labor market adjustment in Turkey," Policy Research Working Paper Series 3804, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3804
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    References listed on IDEAS

    as
    1. Oya Celasun & R. Gaston Gelos & Alessandro Prati, 2004. "Would "Cold Turkey" Work in Turkey?," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 493-509, November.
    2. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Ceyhun ELGİN & Tolga Umut KUZUBAŞ, 2012. "Wage-Productivity Gap in Turkish Manufacturing Sector," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 27(316), pages 09-31.
    2. Pierre Richard Agénor & Devrim Yilmaz, 2006. "The Tyranny of Rules: Fiscal Discipline, Productive Spending, and Growth," Economics Discussion Paper Series 0616, Economics, The University of Manchester.
    3. Pierre-Richard Agénor & Peter Montiel, 2008. "Monetary Policy Analysis in a Small Open Credit-Based Economy," Open Economies Review, Springer, vol. 19(4), pages 423-455, September.
    4. repec:ilo:ilowps:467426 is not listed on IDEAS
    5. Dario DEBOWICZ, 2010. "Real Financial Models in Argentina," EcoMod2010 259600044, EcoMod.
    6. Pierre-Richard Agénor & Peter J. Montiel, 2006. "Credit Market Imperfections and the Monetary Transmission Mechanism Part I: Fixed Exchange Rates," Centre for Growth and Business Cycle Research Discussion Paper Series 76, Economics, The University of Manchester.
    7. A. Erinc Yeldan, 2017. "Turkey’s employment subsidy program under the great recession: a general equilibrium assessment," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(2), pages 225-254, March.
    8. Erinç Yeldan, 2013. "The Turkish experience with work-sharing policy during the global economic crisis, 2008–2010," Chapters, in: Jon C. Messenger & Naj Ghosheh (ed.), Work Sharing during the Great Recession, chapter 5, pages 119-150, Edward Elgar Publishing.
    9. Angel-Urdinola, Diego F. & Haimovich, Francisco & Robayo, Monica, 2009. "Is Social Assistance Contributing to Higher Informality in Turkey?," MPRA Paper 27675, University Library of Munich, Germany.
    10. Zapodeanu Daniela & Gavris Natalia & Leac Dafina Roxana & Teudan Ana - Maria, 2011. "A Liniar Model Of Analyzing Inflation In Romania, Bulgaria, Turkey And Croatia," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 445-451, December.
    11. Pierre-Richard Agénor, 2005. "Unemployment-Poverty Tradeoffs," Central Banking, Analysis, and Economic Policies Book Series, in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.),Labor Markets and Institutions, edition 1, volume 8, chapter 5, pages 115-165, Central Bank of Chile.
    12. repec:ilo:ilowps:463375 is not listed on IDEAS
    13. Pierre‐Richard Agénor, 2006. "Market Sentiment and Macroeconomic Fluctuations under Pegged Exchange Rates," Economica, London School of Economics and Political Science, vol. 73(292), pages 579-604, November.
    14. Mathieu Dufour & Ozgur Orhangazi, 2009. "The 2000-2001 Financial Crisis in Turkey: A Crisis for Whom?," Review of Political Economy, Taylor & Francis Journals, vol. 21(1), pages 101-122.
    15. Yeldan, Erinç. & Ercan, Hakan., 2011. "Growth, employment policies and economic linkages : Turkey," ILO Working Papers 994633753402676, International Labour Organization.
    16. Yeldan, Erinc., 2011. "Macroeconomics of growth and employment : the case of Turkey," ILO Working Papers 994674263402676, International Labour Organization.
    17. Telli, Çagatay & Voyvoda, Ebru & Yeldan, Erinç, 2008. "Economics of environmental policy in Turkey: A general equilibrium investigation of the economic evaluation of sectoral emission reduction policies for climate change," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 321-340.
    18. Pierre‐Richard Agénor, 2005. "The Macroeconomics Of Poverty Reduction," Manchester School, University of Manchester, vol. 73(4), pages 369-434, July.
    19. P R Agénor & D Yilmaz, 2006. "The Tyranny of Rules: Fiscal Discipline, Productive Spending, and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 73, Economics, The University of Manchester.

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    Keywords

    Labor Markets; Economic Theory&Research; Banks&Banking Reform; Public Sector Economics&Finance; Economic Stabilization;
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