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The Forecasting Ability of a Cointegrated VAR Demand System with Endogeneous vs. Exogenous Expenditure Variable: An application to the UK imports of tourism from neighbouring countries

Margarida de Mello () and Kevin Nell ()
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Margarida de Mello: CETE, Faculdade de Economia da Universidade do Porto

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This paper uses Sims’s VAR methodology, as an alternative to Deaton and Muellbauer’s AIDS approach, to establish the long-run relationships between I(1) variables: tourism shares, tourism prices and UK tourism budget. The VAR deterministic components and sets of exogenous and endogenous variables are established, and the Johansen’s rank test is used to determine the cointegrated vectors in the system. The structural form of the cointegrated VAR is identified and the long-run parameters are estimated under several theoretical restrictions. The restricted cointegrated VAR reveals itself a theoretically consistent and statistically robust means to analyse the long-run demand behaviour of UK tourists and an accurate forecaster of the destinations’ shares.

Pages: 37 pages
Date: 2001-07
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