Bin Grace Li, Mr. Stephen A. O'Connell, Mr. Christopher S Adam, Mr. Andrew Berg, and Mr. Peter J Montiel
VAR methods suggest that the monetary transmission mechanism may be weak and unreliable in
low-income countries (LICs). But are structural VARs identified via short-run restrictions capable
of detecting a transmission mechanism when one exists, under research conditions typical of these
countries? Using small DSGEs as data-generating processes, we assess the impact on VAR-based
inference of short data samples, measurement error, high-frequency supply shocks, and other
features of the LIC environment. The impact of these features on finite-sample bias appears to be
relatively modest when identification is valid—a strong caveat, especially in LICs. However,
many of these features undermine the precision of estimated impulse responses to monetary policy
shocks, and cumulatively they suggest that “insignificant” results can be expected even when the
underlying transmission mechanism is strong.
Mr. Sebastian Acevedo Mejia, Lu Han, Miss Marie S Kim, and Ms. Nicole Laframboise
This paper studies the role of airlift supply on the tourism sector in the Caribbean. The
paper examines the relative importance of U.S.-Caribbean airlift supply factors such as the
number of flights, seats, airlines, and departure cities on U.S. tourist arrivals. The possible
endogeneity problem between airlift supply and tourist arrivals is addressed by using a
structural panel VAR and individual country VARs. Among the four airlift supply
measures, increasing the number of flights is found to be the most effective way to boost
tourist arrivals on a sustained basis. As a case study, the possible crowding effect of
increasing the number of U.S. flights to Cuba is investigated and, based on past
observations, we find no significant impact on flights to other Caribbean countries. The
impact of natural disasters on airlift supply and tourist arrivals is also quantified.
Mr. Paul Cashin, Mr. Kamiar Mohaddes, and Mr. Mehdi Raissi
This paper employs a dynamic multi-country framework to analyze the international
macroeconomic transmission of El Niño weather shocks. This framework comprises 21
country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for
not only direct exposures of countries to El Niño shocks but also indirect effects through thirdmarkets.
We contribute to the climate-macroeconomy literature by exploiting exogenous
variation in El Niño weather events over time, and their impact on different regions crosssectionally,
to causatively identify the effects of El Niño shocks on growth, inflation, energy
and non-fuel commodity prices. The results show that there are considerable heterogeneities in
the responses of different countries to El Niño shocks. While Australia, Chile, Indonesia, India,
Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to
an El Niño shock, for other countries (including the United States and European region), an El
Niño occurrence has a growth-enhancing effect. Furthermore, most countries in our sample
experience short-run inflationary pressures as both energy and non-fuel commodity prices
increase. Given these findings, macroeconomic policy formulation should take into
consideration the likelihood and effects of El Niño weather episodes.
This paper examines the importance of agglomeration economies and institutions vis-a-vis initial conditions and factor endowments in explaining the locational choice of foreign investors. Using a unique panel data set for 25 transition economies between 1990 and 1998, we find that the main determinants are institutions, agglomeration, and trade openness. We find important differences between the Eastern European and Baltic countries, on the one hand, and the CIS countries on the other: in the latter group, natural resources and infrastructure matter, while agglomeration matters only for the former group.