Asymmetric persistence in Turkish interest and inflation rates: New evidence from quantile unit root test with structural shifts

Abstract This study investigates the persistence in Turkish interest and inflation rates since the implementation of inflation‐targeting monetary policy, covering the period from January 2006 to July 2022. We focus on accounting for asymmetric persistence by benefiting from recent developments in quantile unit root analysis. The findings indicate that while the conventional unit root tests support the persistence of shocks to interest rates and inflation, the quantile unit root test demonstrates an asymmetric behaviour of the persistence, implying a time‐varying structure with mean reversion (persistency) of the shocks in low (high) inflation periods. Furthermore, the half‐lives increase with the positive shocks, indicating a longer speed of adjustment in the high inflation regime. These findings provide new insights into the relationship between interest rates and inflation and have sound policy implications.