In the midst of new waves of economic crises, the vulnerability of the tourism sector to external shocks has pushed tourism-dominated economies into limbo. In light of this context, this paper pursues a dual objective. First, we examine how an adverse global income shock impacts inflation, exchange rates, and wages in a tourism-sector led developing economy. Secondly, we investigate how the Central Bank reacts to the crisis originating from the tourism sector by actively selecting its policy instruments, potentially leading to the manifestation of a price puzzle. We obtained that the common colloquy about the causal relationship between inflation and credit control policy may be reversed.
AbeygunawardanaKAmarasekaraCTilakaratneCD (2017) Macroeconomic effects of monetary policy shocks: evidence from Sri Lanka. South Asia Economic Journal18(1): 21–38.
2.
AghaAIAhmedNMubarikYA, et al. (2005) Transmission mechanism of monetary policy in Pakistan. SBP Research Bulletin1: 1–23.
3.
AngeloniIKashyapAKMojonB, et al. (2003) The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and US. Mass, USA: National Bureau of Economic Research Cambridge.
4.
BakradzeGBillmeierA (2007) Inflation targeting in Georgia: are we there yet? In: IMF Working Paper 07/193, Washington, DC.
5.
BasuK (2015) An Economist in the Real World: The Art of Policymaking in India. MIT Press.
6.
BernankeBSBoivinJEliaszP (2005) Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach. Quarterly Journal of Economics120(1): 387–422.
7.
BoivinJGiannoniMP (2006) Has monetary policy become more effective?The Review of Economics and Statistics88(3): 445–462.
8.
BordonARWeberA (2010) The transmission mechanism in Armenia: new evidence from a regime switching VAR analysis. In: IMF Working Paper 10/270, Washington, DC.
9.
BransonWH (1972) The trade effects of the 1971 currency realignment. Brookings Papers on Economic Activity1: 15–69.
10.
ChambersNCifterA (2022) Working capital management and firm performance in the hospitality and tourism industry. International Journal of Hospitality Management102: 103144.
11.
ChaudhuriS (2009) Economic recession and informal sector workers. SSRN.
12.
ChoV (2001) Tourism forecasting and its relationship with leading economic indicators. Journal of Hospitality & Tourism Research25(4): 399–420.
13.
ChoiJG (2003) Developing an economic indicator system (a forecasting technique) for the hotel industry. International Journal of Hospitality Management22(2): 147–159.
14.
De VitaG (2014) The long-run impact of exchange rate regimes on international tourism flows. Tourism Management45: 226–233.
15.
DingDTimmerY (2023) Exchange rate elasticities of international tourism and the role of dominant currency pricing. IMF Working Papers137: 102908.
16.
GiordaniP (2004) An alternative explanation of the price puzzle. Journal of Monetary Economics51(6): 1271–1296.
17.
GünayFBayraktaroğluE (2022) Analysis of the effects of the central bank’s interest announcements on tourism index returns. Sosyoekonomi30(51): 91–118.
18.
GuptaMRDuttaPB (2017) Capital mobility, urban unemployment and tourism development. Keio Economic Studies53: 1–17.
19.
GuptaMRDuttaPB (2018) Tourism development, environmental pollution and economic growth: a theoretical analysis. Journal of International Trade & Economic Development27(2): 125–144.
20.
GuptaMRDuttaPB (2019a) International tourism in a north–south model: a theoretical analysis. Foreign Trade Review54(2): 91–114.
21.
GuptaMRDuttaPB (2019b) Efficiency wage, unemployment and tourism development: a theoretical analysis. Indian Growth and Development Review.
22.
HallCMSeyfiS (2020) COVID-19 pandemic, tourism and degrowth. In: Degrowth and Tourism. Routledge, 220–238.
23.
HansonMS (2004) The “price puzzle” reconsidered. Journal of Monetary Economics51(7): 1385–1413.
Higgins-DesbiollesF (2020) The “war over tourism”: challenges to sustainable tourism in the tourism academy after COVID-19. Journal of Sustainable Tourism29(4): 551–569.
Inchausti-SintesFPérez-GranjaU (2022) Monetary policy and exchange rate regime in tourist islands. Tourism Economics28(2): 325–348.
28.
IrandoustM (2019) On the relation between exchange rates and tourism demand: a nonlinear and asymmetric analysis. The Journal of Economic Asymmetries20: e00123.
29.
KaushalVSrivastavaS (2021) Hospitality and tourism industry amid COVID-19 pandemic: perspectives on challenges and learnings from India. International Journal of Hospitality Management92: 102707.
30.
KhalidUOkaforLEBurzynskaK (2021) Does the size of the tourism sector influence the economic policy response to the COVID-19 pandemic?Current Issues in Tourism24(19): 2801–2820.
31.
KimJLeeCKMjeldeJW (2018) Impact of economic policy on international tourism demand: the case of Abenomics. Current Issues in Tourism21(16): 1912–1929.
32.
KreininME (1977) The effect of exchange rate changes on the prices and volume of foreign trade. IMF Staff Papers47: 207–229.
33.
LangMKrznarI (2004) Transmission Mechanism of Monetary Policy in Croatia. Zagreb: Mimeo, Croatian National Bank.
34.
LeshoroTL (2014) Does the repurchase rate affect inflation in South Africa? An empirical analysis using an impulse response function. Journal of Economics and Behavioral Studies6(7): 524–531.
35.
MahataSKhanRKNagRN (2020) Economic Recession, Informal Sector and Skilled–Unskilled Wage Disparity in a Developing Economy: A Trade-Theoretical Analysis. Foreign Trade Review.
36.
MahataSKhanRKChaudhuriS, et al. (2022) COVID-19 lockdown, family migration and unemployment in a gendered society. Research in Economics76(3): 218–236. DOI: 10.1016/j.rie.2022.07.010.
37.
MallickS (2009) Macroeconomic Shocks, Monetary Policy, and Implicit Exchange Rate Targeting in India. London: Mimeo, Queen Mary, University of London.
38.
MandalBChaudhuriSPrasadAS (2021) A Note on unemployment of unskilled labor due to COVID-19 led restriction on migration and trade. Review of Economics71(3): 223–236.
39.
MarjitSDasGG (2021) Contact-intensity, collapsing entertainment sector and wage inequality: a finite change model of Covid-19 impact. In: CESifo Working Papers, Germany.
40.
MarjitSKarSChaudhuriS (2011) Recession in the skilled sector and implications for informal wage. Research in Economics65(3): 158–163.
41.
MenonJ (1995) Exchange rate pass‐through. Journal of Economic Surveys9(2): 197–231.
42.
MilchevaS (2013) A bank lending channel or a credit supply shock?Journal of Macroeconomics37: 314–332.
43.
MishraPMontielP (2013) How effective is monetary transmission in low-income countries? A survey of the empirical evidence. IMF Working Papers37(2): 187–216.
44.
MusthafaMTLeTSuardiS (2023) Monetary policy transmission in Sri Lanka. Applied Economics56: 1–18.
45.
NtounisNParkerCSkinnerH, et al. (2022) Tourism and hospitality industry resilience during the Covid-19 pandemic: evidence from England. Current Issues in Tourism25(1): 46–59.
46.
Olawale-OgunkulaETarawalieAB (2008) Monetary policy transmission mechanism in Sierra Leone: a Vector Error Correction (VEC) approach. Journal of Political Economy207–237.
47.
PatraMDKhundrakpamJKJohnJ (2018) Non-linear, asymmetric and time-varying exchange rate pass-through: recent evidence from India. In: RBI Working Paper Series No. 02.
48.
PhilipAP (2022) The role of monetary factors in the Malaysian tourism industry: an ARDL approach to cointegration. International Journal of Hospitality and Tourism Systems15(1): 69.
49.
PrattS (2014) A general equilibrium analysis of the economic impact of a devaluation on tourism: the case of Fiji. Tourism Economics20(2): 389–405.
RidderstaatJCroesR (2017) The link between money supply and tourism demand cycles: a case study of two Caribbean destinations. Journal of Travel Research56(2): 187–205.
53.
RobinsonWRobinsonJW (1997) The transmission mechanism of monetary policy in the Jamaican economy. In: Paper Presented at the Annual Conference of the Caribbean Centre for Monetary Studies.
54.
RookayyahISeetanahBNunkooR, et al. (2024) The impact of exchange rate and exchange rate volatility on tourism demand using disaggregated data. International Journal of Tourism Research26(2): e2640.
55.
Santana-GallegoMLedesma-RodríguezFJPérez-RodríguezJV (2010) Exchange rate regimes and tourism. Tourism Economics16(1): 25–43.
56.
ŞengelÜIşkınMÇevrimkayaM, et al. (2023) Fiscal and monetary policies supporting the tourism industry during COVID-19. Journal of Hospitality and Tourism Insights6(4): 1485–1501.
57.
SimsCA (1992) Interpreting the macroeconomic time series facts: the effects of monetary policy. European Economic Review36(5): 975–1000.
58.
ŠkareMSorianoDRPorada-RochońM (2021) Impact of COVID-19 on the travel and tourism industry. Technological Forecasting and Social Change163: 120469.
59.
SpitällerE (1980) Short-run effects of exchange rate changes on terms of trade and trade balance. In: Staff Papers-International Monetary Fund, 320–348.
60.
ThaparA (2008) Using private forecasts to estimate the effects of monetary policy. Journal of Monetary Economics55(4): 806–824.
61.
Tourism Satellite Account: Recommended Methodological Framework (2008) Tourism Satellite Account: Recommended Methodological Framework. Department of Economics and Social Affairs, Statistics Division, United Nations.
62.
TungLTThangPN (2022) Impact of exchange rate on foreign tourist demand: evidence from developing countries. GeoJournal of Tourism and Geosites45(4): 1579–1585.
63.
TurnerLKulendranNFernandoH (1997) The use of composite national indicators for tourism forecasting. Tourism Economics3(4): 309–317.
64.
ValogoMKDuoduEYusifH, et al. (2023) Effect of exchange rate on inflation in the inflation targeting framework: is the threshold level relevant?Research in Globalization6: 100119.
65.
VellasFVellasFBécherelL, et al. (1995) Finance and investment in international tourism. International Tourism: Economic Perspectives194–216.
66.
ZhengYGohEWenJ (2020) The effects of misleading media reports about COVID-19 on Chinese tourists’ mental health: a perspective article. Anatolia31(2): 337–340.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
