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Varying Elasticities and Forecasting Performance
Author(s) -
Smeral Egon,
Song Haiyan
Publication year - 2013
Publication title -
international journal of tourism research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.155
H-Index - 58
eISSN - 1522-1970
pISSN - 1099-2340
DOI - 10.1002/jtr.1972
Subject(s) - economics , econometrics , business cycle , price elasticity of demand , income elasticity of demand , elasticity (physics) , order (exchange) , tourism , microeconomics , macroeconomics , materials science , finance , political science , law , composite material
This study assumes that tourists' demand reactions to income and price changes are asymmetric at different phases of the business cycle. In order to test this hypothesis, we analyzed the demand for international tourism in five source markets using a modified growth rate (MGR) model. The empirical evidence demonstrates that income elasticity is indeed asymmetric across the business cycle in four source markets. In addition, asymmetric price effects were found for one source market. To compare forecasting performance, we also estimated a time‐varying parameter (TVP) model. The results show that the MGR model generally outperforms the TVP model. Copyright © 2013 John Wiley & Sons, Ltd.