DeFiPP Research Seminar-Fabio Canova (BI Norvegian Business School)
What drives the recent surge in inflation? The historical decomposition roller coaster
Date : 03/10/2023 16:00 - 03/10/2023 17:15
Lieu : E33
Orateur(s) : Fabio Canova
Organisateur(s) : Romain Houssa
Abstract:
What drives the inflation surge in the post Covid period? To answer this question, one must decompose observable fluctuations into the contributions due to structural shocks. We document how whimsical an historical shock decomposition can be in standard vector autoregressive models. Neglecting the uncertainty surrounding the deterministic component of the model implies implausible behavior for shocks over history under general conditions. Our favorite approach to solve the problem, the single unit prior, shrinks the massive uncertainty around the deterministic components toward their sample mean values. With such a prior and a standard sign-identified VAR, demand shocks are the main drivers of the current inflation surge, both in the United States and in the euro area.
Contact :
Romain Houssa
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romain.houssa@unamur.be
Télecharger :
vCal