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Abstract

We use the vector autoregressive model (VAR) to test the impact of tourism on the New Zealand economy. The variables of interest used in this study are: the index of real exchange rate between the NZ dollar and currencies of the 14 New Zealand’s top trading partners, the travel export in New Zealand and the real GDP of New Zealand. The variables contain all a unit root and are collected at quarterly frequency from 1990 to 2013. The model is fitted first for the whole period from 1990 to 2013 and then for the two sub periods anticipating and following the 2008 financial meltdown (i.e. 1990-2008 and 2008-2013). The results show that before the financial crisis the variables were linked by long run relationships that then disappeared once the financial crisis hit New Zealand. Between 1990 and 2008, an increase in GDP leaded to an appreciation while a depreciation of the exchange rate leaded to an increase in tourist receipts in the long run. In the short run, an increase of tourist receipts leaded to an appreciation for both the entire period and the sub period following the financial crisis while an increase in GDP leaded to an appreciation only for the sub period from 2008 to 2013.

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