The asymmetry of inflation adjustment in Turkey

We investigated the dynamic behavior of the overall inflation rate, its subgroups, and inflation rates of traded and non-traded goods in Turkey between 1994:M1 and 2012:M5 by using a quantile autoregression approach developed by Koenker and Xiao (2004). This method makes no assumptions about the distribution of inflation rates and allowed us to analyze possible asymmetry in mean reversion toward the equilibrium for inflation rates. Our results revealed an asymmetric speed in the inflation adjustment process across different quantiles before and after an inflation targeting (IT) regime (implicit and explicit); persistence relatively decreased after adoption of implicit IT in 2002 or explicit IT and inflation rates became much more mean reverting.

► We modeled dynamic behavior of inflation by quantile autoregression approach. ► Asymmetric speed of inflation adjustment and persistence is investigated. ► An asymmetry in the inflation adjustment across different quantiles is revealed. ► Inflation persistence relatively decreased after adoption of IT regime. ► Result is that CBRT has been considering possible inflation shocks and their sizes.