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Disinflation, fiscal sustainability, and labor market adjustment in Turkey

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

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3804.

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Date of creation: 01 Jan 2006
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Handle: RePEc:wbk:wbrwps:3804
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  1. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
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