Empirical Economics

, Volume 30, Issue 2, pp 277–308 | Cite as

The forecasting ability of a cointegrated VAR system of the UK tourism demand for France, Spain and Portugal

Abstract

This paper uses the vector autoregressive (VAR) methodology as an alternative to Deaton and Muellbauer’s Almost Ideal Demand System (AIDS), to establish the long-run relationships between I(1) variables: tourism shares, tourism prices and UK tourism budget. With appropriate testing, the deterministic components and sets of exogenous and endogenous variables of the VAR are established, and Johansen’s rank test is used to determine the number of cointegrated vectors in the system. The cointegrated VAR structural form is identified and the long-run structural parameters are estimated. Theoretical restrictions such as homogeneity and symmetry are tested and not rejected by the VAR structure. The fully restricted cointegrated VAR model reveals itself a theoretically consistent and statistically robust means to analyse the long-run demand behaviour of UK tourists, and an accurate multi-step forecaster of the destinations’ shares when compared with unrestricted reduced form and first differenced VARs, or even with the structural AIDS model.

Keywords

Tourism demand cointegration equal forecasting accuracy tests 

JEL classification

C5 D1 

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Copyright information

© Springer-Verlag 2005

Authors and Affiliations

  1. 1.CETE* - Centro de Estudos de Economia Industrial do Trabalho e da Empresa, Faculdade de EconomiaUniversidade do PortoPortoPortugal
  2. 2.Faculdade de Economia e GestáoUniversidade Católica, Centro Regional do PortoPortoPortugal

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