How do Overnight Stays React to Exchange Rate Changes?

Christian Stettler

doi:10.1007/bf03399437

Abstract

SummaryThis paper analyses the effect of a change in the real exchange rate on the number of overnight stays in Swiss hotels. It uses unique three-dimensional panel data on the monthly number of overnight stays by the visitor’s country of origin in 141 Swiss communities during the ten-year period from January 2005 to December 2014. We find low exchange rate elasticities of 0.2 for cities, but much higher elasticities of 1.4 for touristic communities. On the source market side, we find large exchange rate elasticities for German, Dutch, and Belgian visitors, while travellers from France and Italy are less price sensitive.

Highlights

Fears of the Swiss tourism industry loom large since January 15, 2015
In the context of the ongoing debate on the consequences of the Swiss francs appreciation, this paper analyses the effect on the tourism industry of different Swiss communities by estimating the impact of a change in the real exchange rate on the number of overnight stays in Swiss hotels
A real appreciation of the Swiss franc by 1% leads to a decrease of 0.74% in the number of overnight stays in the 141 communities included in our sample

Summary

Introduction

Fears of the Swiss tourism industry loom large since January 15, 2015. On this day the Swiss National Bank (SNB) removed the exchange rate floor of 1.20 Swiss francs per euro. This paper makes several contributions to the previous literature: First, to our knowledge our paper is the first to exploit such detailed data on the number of international overnight stays in Switzerland disaggregated by both, source market and community, the lowest administrative level within the country. This allows for more precise estimates thanks to the use of more observations and more degrees of freedom. Extending the dataset to three dimensions allows us to control for important sources of omitted variable bias through the inclusion of high-dimensional fixed effects

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