Identifying Structural Shocks: The Origin of Inflationary Pressures

Resumen

Using the two most important methodologies to identify structural shocks with a Structural VAR model, we generate a historical decomposition for the aggregate output and the official consumer price index. The identification strategy uses the notion that the demand and supply pressures can be distinguished from each other by the direction of the respective effects on the price and quantity vectors of the goods, and services used for final consumption in the economy. The study found empirical evidence that the demand shocks in both Blanchard and Quah and Sign restrictions explains most of the behaviour of inflation in Guatemala.