In this seminar Zulfiqar Hyder will provide an overview of his recent paper, ‘Identification of Financial Shocks in SVAR with Model-Based Sign Restrictions’. This paper quantifies the importance of financial shocks in business cycle fluctuations for the US economy using structural VAR models. Financial and non-financial shocks are identified with a minimum set of sign restrictions based on the two competing New Keynesian models: the standard New Keynesian model augmented with a financial accelerator and the New Keynesian model augment with financial intermediaries. Estimation results show that a financial shock, emanating both from entrepreneur’s net worth and financial intermediaries net worth, is prominent in explaining fluctuations in real output. As far as the relative importance of these two financial shocks is concerned, the following results stand out. A financial shock related to the demand side is the major driver of short run output fluctuations while financial shocks related to financial intermediaries explains relatively larger share of output fluctuations over longer time horizon. Zulfiqar concludes that a financial shock related with demand side explains relatively larger variations in the interest rate spread over longer time horizon.

Zulfiqar Hyder is a PhD candidate at the Centre for Applied Macroeconomic Analysis. His research interests are macroeconomics and monetary policy with a focus on financial frictions and optimal monetary policy. He also holds a Master degree in Development Economics from Center for Development Economics (CDE), Williams College.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.