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On the relation between exchange rates and tourism demand: A nonlinear and asymmetric analysis

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  • Irandoust, Manuchehr

Abstract

Previous studies of demand for tourism assumed that the effect of exchange rate fluctuations on the demand for tourism were symmetric for appreciations and depreciations, in both sign and size. In this paper we separate appreciations from depreciations and find that the assumption is not justified. Thus, this paper examines the extent to which exchange rate changes have an asymmetric effect on tourism demand in ten European countries by using hidden cointegration analysis within a likelihood-based panel framework. The findings indicate that there is a long-run relationship between tourism demand and exchange rate fluctuations which give support for the view that tourism demand have responded asymmetrically to the exchange rate changes. The economic implication of our results is that depreciations and appreciations affect tourism demand differently both in sign and size. It is worth mentioning that the methodological framework utilized in this paper can be a useful tool for designing and predicting the behavior of exchange rates.

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  • Irandoust, Manuchehr, 2019. "On the relation between exchange rates and tourism demand: A nonlinear and asymmetric analysis," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    • Handle: RePEc:eee:joecas:v:20:y:2019:i:c:s1703494919300131
    DOI: 10.1016/j.jeca.2019.e00123
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    2. Mesagan, Ekundayo Peter & Alimi, Olorunfemi Yasiru & Vo, Xuan Vinh, 2022. "The asymmetric effects of exchange rate on trade balance and output growth," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
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    8. Muhammad Amin Hasan & Mr. Abdullah & Muhammad Arsalan Hashmi & Ali Sajid, 2022. "International Remittances and International Tourism Development in South Asia: The Moderating Role of Political Stability," Journal of Economic Impact, Science Impact Publishers, vol. 4(3), pages 177-187.
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    More about this item

    Keywords

    Simulation; Real effective exchange rate; Tourism demand; Asymmetric; Hidden cointegration; Likelihood-based panel cointegration;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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