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A Tourism Financial Conditions Index

Author

Listed:
  • Chia-Lin Chang

    (Department of Applied Economics, Department of Finance, National Chung Hsing University, Taiwan)

  • Hui-Kuang Hsu

    (Department of Finance and Banking National Pingtung Institute of Commerce, Taiwan)

  • Michael McAleer

    (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute, The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of Economic Research, Kyoto University.)

Abstract

The paper uses monthly data on financial stock index returns, tourism stock sub-index returns, effective exchange rate returns and interest rate differences from April 2005 – August 2013 for Taiwan that applies Chang’s (2014) novel approach for constructing a tourism financial indicator, namely the Tourism Financial Conditions Index (TFCI). The TFCI is an adaptation and extension of the widely-used Monetary Conditions Index (MCI) and Financial Conditions Index (FCI) to tourism stock data. However, the method of calculation of the TFCI is different from existing methods of constructing the MCI and FCI in that the weights are estimated empirically. The empirical findings show that TFCI is estimated quite accurately using the estimated conditional mean of the tourism stock index returns. The new TFCI is straightforward to use and interpret, and provides interesting insights in predicting the current economic and financial environment for tourism stock index returns that are based on publicly available information. In particular, the use of market returns on the tourism stock index as the sole indicator of the tourism sector, as compared with the general activity of economic variables on tourism stocks, is shown to provide an exaggerated and excessively volatile explanation of tourism financial conditions.

Suggested Citation

  • Chia-Lin Chang & Hui-Kuang Hsu & Michael McAleer, 2014. "A Tourism Financial Conditions Index," Documentos de Trabajo del ICAE 2014-20, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico, revised May 2014.
    • Handle: RePEc:ucm:doicae:1420
    Note: For financial support, the first author wishes to thank the National Science Council, Taiwan, and the third author wishes to acknowledge the Australian Research Council and the National Science Council, Taiwan. This is a substantially revised version of a paper that was previously distributed as “A Tourism Conditions Index”. Tel: +886 (04)22840350 ext 309; Fax: +886(04)22860255
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    References listed on IDEAS

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    1. repec:zbw:bofrdp:2001_017 is not listed on IDEAS
    2. Matheson, Troy D., 2012. "Financial conditions indexes for the United States and euro area," Economics Letters, Elsevier, vol. 115(3), pages 441-446.
    3. Kimberly Beaton & René Lalonde & Corinne Luu, 2009. "A Financial Conditions Index for the United States," Discussion Papers 09-11, Bank of Canada.
    4. Caesar P Lack, 2003. "A financial conditions index for Switzerland," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 398-413, Bank for International Settlements.
    5. Bank for International Settlements, 2003. "Monetary policy in a changing environment," BIS Papers, Bank for International Settlements, number 19.
    6. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
    7. Scott Brave & R. Andrew Butters, 2011. "Monitoring financial stability: a financial conditions index approach," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 35(Q I), pages 22-43.
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    Cited by:

    1. Chia-Lin Chang & Michael McAleer & Chien-Hsun Wang, 2017. "An Econometric Analysis of ETF and ETF Futures in Financial and Energy Markets Using Generated Regressors," IJFS, MDPI, vol. 6(1), pages 1-24, December.
    2. Serdar Ongan & Cem Işik & Dilek Özdemir, 2017. "The Effects of Real Exchange Rates and Income on International Tourism Demand for the USA from Some European Union Countries," Economies, MDPI, vol. 5(4), pages 1-11, December.

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    More about this item

    Keywords

    Monetary Conditions Index; Financial Conditions Index; Model-based Tourism Financial Conditions Index; Unbiased Estimation.;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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