Modelling the Spillover Effects of Exchange Rates on Australia's Inbound Tourism Growth

35 Pages Posted: 25 Mar 2011 Last revised: 27 Mar 2011

See all articles by Ghialy Yap

Ghialy Yap

Edith Cowan University; Financial Research Network (FIRN)

Date Written: March 18, 2011

Abstract

The appreciation of the Australian dollar has been a concern as Australia has become less competitive compared to neighbouring countries. This paper investigates to what extent exchange rates could adversely affect Australia’s inbound tourism and whether volatility in exchange rates could increase the uncertainty in international tourist arrivals to Australia. The study is based on nine countries of origin namely China, India, Japan, Malaysia, New Zealand, Singapore, South Korea, the UK and the USA for the period January 1991 to January 2011. It uses multivariate conditional volatility regressions to model the time-varying conditional variances of international tourism growth and exchange rates. Empirical findings show that tourists from Malaysia and New Zealand are relatively more sensitive to currency shocks than the others. Nevertheless, tourists’ memories of the shocks could diminish in the long-run, suggesting that the sudden appreciation of Australian dollar will not have long-term negative impacts on Australia’s inbound tourism.

Keywords: Inbound tourism, Australia, exchange rates, volatility spillover, news shocks

JEL Classification: F10, F00

Suggested Citation

Yap, Ghialy C. L., Modelling the Spillover Effects of Exchange Rates on Australia's Inbound Tourism Growth (March 18, 2011). Available at SSRN: https://ssrn.com/abstract=1789645 or http://dx.doi.org/10.2139/ssrn.1789645

Ghialy C. L. Yap (Contact Author)

Edith Cowan University ( email )

Joondalup Campus
Perth
Joondalup 6027 WA
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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