research
"Aggregation, Heterogeneous Autoregression and Volatility of Daily International Tourist Arrivals and Exchange Rates"
- Publication date
- Publisher
Abstract
Tourism is a major source of service receipts for many countries, including Taiwan. The two leading tourism countries for Taiwan, comprising a high proportion of world tourist arrivals to Taiwan, are Japan and USA, which are sources of short and long haul tourism, respectively. As it is well known that a strong domestic currency can have adverse effects on international tourist arrivals, daily data from 1 January 1990 to 31 December 2008 are used to model the world price and US/NewTaiwan and Yen/ New Taiwan exchangerates,andtouristarrivalsfromtheworld,USAandJapantoTaiwan,aswellastheirassociatedvolatility.ThesampleperiodincludestheAsianeconomicandfinancialcrisesin1997,andpartoftheglobalfinancialcrisisof2008−09.Inclusionoftheexchangerateallowsapproximatedailypriceeffectsonworld,USandJapanesetouristarrivalstoTaiwantobecaptured.TheHeterogeneousAutoregressive(HAR)modeldoesnotreproducethetheoreticalhyperbolicdecayratesassociatedwithfractionallyintegrated(orlongmemory)timeseriesmodels,butitcanneverthelessapproximatequiteaccuratelyandparsimoniouslytheslowlydecayingcorrelationsassociatedwithsuchmodels.TheHARmodelisusedtoapproximatelongmemorypropertiesindailyexchangeratesandinternationaltouristarrivals,totestwhetheralternativeshortandlongrunestimatesofconditionalvolatilityaresensitivetotheapproximatelongmemoryintheconditionalmean,toexamineasymmetryandleverageinvolatility,andtoexaminetheeffectsoftemporalandspatialaggregation.Theempiricalresultsshowthattheconditionalvolatilityestimatesarenotsensitivetotheapproximatelongmemorynatureoftheconditionalmeanspecifications.TheQMLEfortheGARCH(1,1),GJR(1,1)andEGARCH(1,1)modelsforworld,USandJapanesetouristarrivalstoTaiwan,andtheworldpriceandUS / New Taiwan andYen/NewTaiwan exchange rates, are statistically adequate and have sensible interpretations. Asymmetry (though not leverage) is found for several alternative HAR models for the world, US and Japanese tourist arrivals to Taiwan. For policy purposes, these empirical results suggest that an arbitrary choice of data frequency or spatial aggregation will not lead to robust findings as they are generally not independent of the level of aggregation used.