This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilisation policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly...

This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilization policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly...

In recent years, an increasing number of countries have began anchoring their fiscal policy frameworks in terms of rules that target the cyclically adjusted or structural (as opposed to actual) balance in an effort to overcome problems of procyclicality and fiscal volatility. The logic for doing...