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We develop a simple quantitative New Keynesian model aimed at analyzing how the reaction of monetary policy contributed to the recent rise and fall in inflation. The model includes several shocks but features oil price shocks for two reasons: (i) energy prices have been among the central factors in discussions about the surge; (ii) we can use identified oil shocks along with monetary shocks to estimate and discipline the model. We then employ the estimated framework to recover shocks without targeting inflation. Both the oil shocks and the shocks to policy accommodation played important roles in the inflation rise.
