Nelson and Plosser revisited: macroeconomic and financial stability of Turkey

Since the seminal paper of Nelson and Plosser (J Monet Econ 10(2):139–162, 1982), analyzing the nature of shocks to macroeconomic and financial data has attracted great attention and it continues to be up-to-date, especially, in conjunction with the advances in unit root literature. This paper examines the persistence in macroeconomic and financial variables for Turkey by means of the recent developments in the quantile autoregression models to account for non-normal distributions, structural changes, and asymmetric dynamics. The results show that while the conventional unit root approaches fail to reject the null hypothesis of unit root for most the of 30 macroeconomic and financial time series, the nonlinear quantile unit root test with smooth structural changes supports evidence on a stable long-run equilibrium for 23 variables. It further reveals asymmetric persistence in most of the Turkey’s macroeconomic and financial data, implying that the effect of an economic shock in inflationary state is different than that in recessionary state.