Abstract
This study develops a vector error correction model of hotel demand to incorporate both the short-run demand fluctuations and the long-run tourism growth. We distinguish between endogenous and exogenous variables in model development to advance previous tourism demand modeling. In addition, we develop a weighting scheme to account for the importance of explanatory economic variables that are pertinent to source markets of a destination to increase model accuracy. With an analysis of the Swiss hotel data from the first quarter of 1975 to the fourth of 2016, we found no evidence that the long-run market equilibrium exists among all three endogenous variables in the model, namely hotel nights, Swiss real gross domestic product, and real exchange rate of the Swiss franc. However, the short-run hotel demand fluctuations could be attributed to behavior persistence of tourists.
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