The Forecasting Ability of a Cointegrated VAR Demand System with Endogeneous vs. Exogenous Expenditure Variable: An application to the UK imports of tourism from neighbouring countries
This paper uses Sims’s VAR methodology, as an alternative to Deaton and Muellbauer’s AIDS approach, to establish the long-run relationships between I(1) variables: tourism shares, tourism prices and UK tourism budget. The VAR deterministic components and sets of exogenous and endogenous variables are established, and the Johansen’s rank test is used to determine the cointegrated vectors in the system. The structural form of the cointegrated VAR is identified and the long-run parameters are estimated under several theoretical restrictions. The restricted cointegrated VAR reveals itself a theoretically consistent and statistically robust means to analyse the long-run demand behaviour of UK tourists and an accurate forecaster of the destinations’ shares.
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- Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
- Pesaran, M Hashem, 1997.
"The Role of Economic Theory in Modelling the Long Run,"
Royal Economic Society, vol. 107(440), pages 178-91, January.
- Pesaran, M.H., 1996. "The Role of Economic Theory in Modelling the Long Run," Cambridge Working Papers in Economics 9612, Faculty of Economics, University of Cambridge.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Andreas Papatheodorou, 1999. "The demand for international tourism in the Mediterranean region," Applied Economics, Taylor & Francis Journals, vol. 31(5), pages 619-630.
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