We provide theory and evidence that relative price shocks can cause aggregate inflation and act as aggregate supply shocks. Empirically, we show that exogenous positive energy price shocks have a positive impact not only on headline but also on U.S. core inflation while depressing U.S. real...

We propose an observation-driven time-varying SVAR model where, in agreement with the Lucas Critique, structural shocks drive both the evolution of the macro variables and the dynamics of the VAR parameters. Contrary to existing approaches where parameters follow a stochastic process with random...