Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/310427 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 7/2024
Publisher: 
Norges Bank, Oslo
Abstract: 
What drives the recent inflation surge? To answer this question, one must decompose inflation fluctuations into the contribution of structural shocks. We document how whimsical such a historical shock decomposition can be in standard vector autoregressive (VAR) models. We show that the deterministic component of the VAR tends to be imprecisely estimated, making the shock contributions poorly identified under general conditions. Our preferred approach to solve this problem- the single-unit-root prior-can massively shrink the uncertainty around the estimated deterministic component. Once this uncertainty is taken care of, demand shocks unambiguously appear as the main drivers of the inflation surge in the United States, the euro Area, and in four small open economies.
Subjects: 
Bayesian vector autoregression
deterministic component
single unit root prior
inflation dynamics
JEL: 
C11
C32
E32
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-316-1
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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