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Modeling the supply and demand for tourism: a fully identified VECM approach

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Author Info

  • Allison Zhou

    (Department of Economics and University of Hawaii Economic Research Organization, University of Hawaii at Manoa)

  • Carl Bonham

    ()
    (Department of Economics and University of Hawaii Economic Research Organization, University of Hawaii at Manoa)

  • Byron Gangnes

    (Department of Economics and University of Hawaii Economic Research Organization, University of Hawaii at Manoa)

Abstract

Cointegration analysis has gradually appeared in the empirical tourism literature. However, the focus has been exclusively on the demand side, neglecting potentially-important supply-side influences and risking endogeneity bias. One reason for this omission may be the difficulty identifying structural relationships in a system setting. We estimate a vector error correction model of the supply and demand for Hawaii tourism using a theory-directed sequential reduction method suggested by Hall et al. (2002). We compare forecasts for the selected model and for two competing models. Diebold and Mariano (1995) tests for forecast accuracy demonstrate the satisfactory performance of this approach.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_07-17.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200717.

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Length: 34 pages
Date of creation: 20 Jul 2007
Date of revision:
Handle: RePEc:hai:wpaper:200717

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Keywords: catastrophe; Cointegration; Vector error correction model; Identification; Tourism demand and supply analysis; Hawaii;

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References

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  1. Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics 9811, Faculty of Economics, University of Cambridge.
  2. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  3. G. William Schwert, 1988. "Tests For Unit Roots: A Monte Carlo Investigation," NBER Technical Working Papers 0073, National Bureau of Economic Research, Inc.
  4. Saikkonen, Pentti, 1993. "Estimation of Cointegration Vectors with Linear Restrictions," Econometric Theory, Cambridge University Press, vol. 9(01), pages 19-35, January.
  5. Phillips, Peter C B, 1995. "Fully Modified Least Squares and Vector Autoregression," Econometrica, Econometric Society, Econometric Society, vol. 63(5), pages 1023-78, September.
  6. Leon Taylor, 1998. "Taxing sales to tourists over time," Public Economics, EconWPA 9810003, EconWPA.
  7. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
  8. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, Elsevier, vol. 97(2), pages 293-343, August.
  9. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers, Princeton, Department of Economics - Econometric Research Program 347, Princeton, Department of Economics - Econometric Research Program.
  10. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  12. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 283-306, March.
  13. repec:cup:etheor:v:9:y:1993:i:2:p:155-88 is not listed on IDEAS
  14. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 16(2), pages 254-59, April.
  15. Carl Bonham & Byron Gangnes, 1995. "Intervention Analysis with Cointegrated Time Series: The Case of the Hawaii Hotel Room Tax," Working Papers, University of Hawaii at Manoa, Department of Economics 199505, University of Hawaii at Manoa, Department of Economics.
  16. Michael Vogt & Chutima Wittayakorn, 1998. "Determinants of the demand for Thailand's exports of tourism," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 30(6), pages 711-715.
  17. Copeland, Brian R, 1991. "Tourism, Welfare and De-industrialization in a Small Open Economy," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 58(232), pages 515-29, November.
  18. Hans-Martin Krolzig, 2003. "General-to-Specific Model Selection Procedures for Structural Vector Autoregressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 769-801, December.
  19. Carl Bonham & Christopher Edmonds & James Mak, 2006. "The Impact of 9/11 and Other Terrible Global Events on Tourism in the U.S. and Hawaii," Economics Study Area Working Papers, East-West Center, Economics Study Area 87, East-West Center, Economics Study Area.
  20. Saikkonen, Pentti, 1993. "Continuous Weak Convergence and Stochastic Equicontinuity Results for Integrated Processes with an Application to the Estimation of a Regression Model," Econometric Theory, Cambridge University Press, vol. 9(02), pages 155-188, April.
  21. Harbo, Ingrid, et al, 1998. "Asymptotic Inference on Cointegrating Rank in Partial Systems," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 16(4), pages 388-99, October.
  22. Witt, Stephen F. & Witt, Christine A., 1995. "Forecasting tourism demand: A review of empirical research," International Journal of Forecasting, Elsevier, Elsevier, vol. 11(3), pages 447-475, September.
  23. Greenslade, Jennifer V. & Hall, Stephen G. & Henry, S. G. Brian, 2002. "On the identification of cointegrated systems in small samples: a modelling strategy with an application to UK wages and prices," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(9-10), pages 1517-1537, August.
  24. Niels Haldrup, 1998. "An Econometric Analysis of I(2) Variables," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 595-650, December.
  25. Haiyan Song & Peter Romilly & Xiaming Liu, 2000. "An empirical study of outbound tourism demand in the UK," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(5), pages 611-624.
  26. repec:cup:etheor:v:9:y:1993:i:1:p:19-35 is not listed on IDEAS
  27. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
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