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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. Tamim Bayoumi and Mr. Reginald Darius
This paper examines the role of credit markets in the transmission of U.S. macro-financial shocks through the prism of a financial conditions index (FCI) based on a vector autoregression (VAR) methodology. It explores the relative predictive power of market variables compared to credit standards/conditions. The main conclusion is that under plausible specifications credit conditions dominate market variables, highlighting the importance of credit supply. The fact that direct measures of credit conditions anticipate future movements in asset prices has an extremely important implication. Most models of the credit channel see it as an amplifier of underlying changes in financial wealth. The impact of credit conditions on growth compared to other market variables implies that credit supply drives other financial variables rather than responding to them.
Mr. Eduardo Borensztein, Carmen M. Reinhart, and Mr. Peter Wickham

conditions in industrial countries have traditionally been considered the main determinant of commodity prices developments, it seems evident that other forces have played a significant role over the recent past. Based on the arguments made in this section, it appears necessary to include a supply variable to account for the booming exports of primary products (Morrison and Wattleworth (1987) using annual data also consider supply effects), and to take into account the change in the demand for commodities of the FSU. III. A Framework In the analysis that follows

Mr. Eduardo Borensztein and Ms. Carmen Reinhart
The “traditional structural approach” to the determination of real commodity prices has relied exclusively on demand factors as the fundamentals that explain the behavior of commodity prices. This framework, however, has been unable to explain the marked and sustained weakness in commodity prices during the 1980s and 1990s. This paper extends that framework in two important directions: First, it incorporates commodity supply in the analysis, capturing the impact on prices of the sharp increase in commodity exports of developing countries during the debt crisis of the 1980s. Second, we take a broader view of “world” demand that extends beyond the industrial countries and includes output developments in Eastern Europe and the former Soviet Union (FSU). The empirical results support these extensions, as both the fit of the model improves substantially and, more importantly, its ability to forecast increases markedly.