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.
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We would like to thank Professors O. O’Donnel, M. Mendes de Oliveira and T. Sinclair, for helpful discussions and suggestions. We are also grateful to two anonymous referees for helpful comments. The usual disclaimer applies.
Research Center supported by Fundação para a Ciência e a Tecnologia, Programa de Financiamento Plurianual through the Programa Operacional Ciência, Tecnologia e Inovação (POCTI), financed by FEDER and Portuguese funds.
First version received: September 2002/Final version received: September 2003
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De Mello, M.M., Nell, K.S. The forecasting ability of a cointegrated VAR system of the UK tourism demand for France, Spain and Portugal. Empirical Economics 30, 277–308 (2005). https://doi.org/10.1007/s00181-005-0241-0
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DOI: https://doi.org/10.1007/s00181-005-0241-0