Data and Codes for WHAT DRIVES THE RECENT SURGE IN INFLATION? THE HISTORICAL DECOMPOSITION ROLLER COASTER

What drives the recent inflation surge? To answer this question, one mustdecompose inflation fluctuations into the contribution of structural shocks. We documenthow whimsical an historical shock decomposition can be in standard vectorautoregressive (VAR) models. We show that the deterministic component of the VARis imprecisely estimated, making the shock contributions poorly identified under generalconditions. Our preferred approach to solve the problem—the single-unit-rootprior—massively shrinks the uncertainty around the estimated deterministic component.Once this uncertainty is taken care of, demand shocks are the main driversof the inflation surge in the United States, the euro area, and in four small openeconomies.