Agénor, Pierre-RichardJensen, Henning TarpVerghis, MathewYeldan, Erinc2012-06-222012-06-222006-01https://hdl.handle.net/10986/8829This 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.CC BY 3.0 IGOACCOUNTINGADJUSTMENT PROGRAMADVERSE EFFECTADVERSE EFFECTSAGGREGATE DEMANDAGGREGATE SUPPLYAGRICULTUREAVERAGE WAGESBALANCE OF PAYMENTSBANK DEPOSITSBANK LENDINGBANK RESTRUCTURINGBANKING SECTORBARGAINING POWERBOND MARKETSBORROWINGBUDGET CONSTRAINTBUDGET CONSTRAINTSBUDGET DEFICITSBUSINESS CYCLECAPITAL NEEDSCENTRAL BANKCOLLECTIVE AGREEMENTSCOMMERCIAL BANKSCORPORATE INCOME TAXDEBTDEBT SERVICEDEFAULT RISKDISINFLATIONDOMESTIC BORROWINGDOMESTIC INFLATIONDOMESTIC MARKETDOMESTIC PRICEDOMESTIC PRICESECONOMIC RESEARCHELASTICITYELASTICITY OF SUBSTITUTIONEMPLOYEEEMPLOYMENTEMPLOYMENT LEVELSEMPLOYMENT PROBABILITYEMPLOYMENT PROTECTION RULESEQUATIONSEQUILIBRIUMEXCHANGE RATEEXCHANGE RATESEXPECTED WAGEEXPECTED WAGESEXPORTSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL SECTORFIRING COSTSFISCAL ADJUSTMENTFISCAL DEFICITFISCAL MANAGEMENTFISCAL POLICYFISCAL REFORMSFISCAL SUSTAINABILITYFOREIGN BORROWINGGDPGNPGOVERNMENT BONDSGOVERNMENT BUDGETGOVERNMENT DEBTGOVERNMENT SUBSIDIESGROWTH RATEINCOMEINCOME TAXESINFLATION RATEINFORMAL ECONOMYINFORMAL LABOR MARKETINFORMAL SECTORINTEREST RATESINTERNATIONAL MIGRATIONJOB SEARCHJOB SECURITYJOB TURNOVERLABOR DEMANDLABOR FORCELABOR FORCE PARTICIPATIONLABOR LAWSLABOR MARKETLABOR MARKET ADJUSTMENTLABOR MARKET REGULATIONSLABOR MARKET SEGMENTATIONLABOR MARKETSLABOR MIGRATIONLABOR REGULATIONSLABOR SUPPLYLIQUIDITYMARGINAL PRODUCTMINIMUM WAGEMINIMUM WAGE LAWMONETARY POLICYNOMINAL INTEREST RATEOPEN UNEMPLOYMENTPAYROLL TAXPAYROLL TAXESPRINCIPLEPRIVATE FIRMSPRIVATE GOODSPRIVATE SECTORPRIVATE SECTOR WAGEPRIVATE SECTOR WAGESPROBABILITY OF DEFAULTPRODUCTIONPRODUCTION FUNCTIONPRODUCTION INPUTSPRODUCTION SIDEPRODUCTIVE SECTORPRODUCTIVITYPROFIT MAXIMIZATIONPUBLICPUBLIC CAPITALPUBLIC DEBTPUBLIC EMPLOYMENTPUBLIC GOODPUBLIC GOODSPUBLIC SECTORPUBLIC SECTOR BORROWINGPUBLIC SECTOR BORROWING REQUIREMENTSPUBLIC SECTOR EMPLOYMENTPUBLIC SECTOR WAGESPUBLIC SERVICESPUBLIC TRANSPORTATIONPURCHASING POWERREAL EXCHANGE RATEREAL GROWTHREAL INTEREST RATEREAL INTEREST RATESREAL VARIABLESREAL WAGEREAL WAGESRELATIVE PRICESRETURNS TO SCALERISK PREMIUMROADSSAVINGSSERVANTSSEVERANCE PAYMENTSSKILLED WORKERSOCIAL SECURITYSOCIAL SECURITY CONTRIBUTIONSSTATE-OWNED ENTERPRISESSTRUCTURAL ADJUSTMENTSUPPLY CURVETAX REFORMTAX REVENUETEMPORARY WORKERSTOTAL EMPLOYMENTTRADE POLICYTRADE UNIONSTREASURYTREASURY BILLSUNEMPLOYEDUNEMPLOYMENTUNEMPLOYMENT BENEFITUNEMPLOYMENT INSURANCEUNEMPLOYMENT RATEUNPAID FAMILY WORKERSUNSKILLED LABORUNSKILLED WORKERSURBAN ECONOMYURBAN WORKERSVALUE ADDEDVAR MODELSWAGE BARGAININGWAGE BILLWAGE RATESWAGE SETWAGESWEALTHWORKERWORKING CAPITALWorld Bank10.1596/1813-9450-3804