Exchange Rate Elasticities of International Tourism and the Role of Dominant Currency Pricing

Ding Ding and Yannick Timmer

No 1378, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In this paper, we estimate exchange rate elasticities of international tourism. Both the bilateral exchange rate and the U.S. dollar exchange rate relative to tourism origin countries are important drivers of tourism flows. The U.S. dollar exchange rate is more important for tourism destination countries with higher U.S. dollar borrowing, pointing toward a complementarity between U.S. dollar pricing and financing. Country-specific dominant currencies (CSDCs) play only a minor role on average but are important for tourism-dependent countries and those with a high concentration of foreign tourists. Consistent with dominant currency pricing, we also find that local hotel prices do increase strongly when the domestic currency depreciates against the U.S. dollar. The importance of the U.S. dollar exchange rate represents a strong piece of evidence of dominant currency pricing (DCP) in the international trade of services. The results suggest that the benefits of exchange rate flexibility for tourism-dependent countries may be weaker than previously thought and that a broad appreciation of the U.S. dollar is associated with a significant decline in tourism flows globally.

Keywords: Exchange rates; Trade flows; Tourism; Dominant currency pricing (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2023-08-15
New Economics Papers: this item is included in nep-int, nep-mon, nep-opm and nep-tur
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/ifdp/files/ifdp1378.pdf (application/pdf)

Related works:
Journal Article: Exchange rate elasticities of international tourism and the role of dominant currency pricing (2023)
Working Paper: Exchange Rate Elasticities of International Tourism and the Role of Dominant Currency Pricing (2022)
Working Paper: Exchange Rate Elasticities of International Tourism and the Role of Dominant Currency Pricing (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1378

DOI: 10.17016/IFDP.2023.1378

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().