Faculty of Business and Law
School of Accounting, Finance and Economics / Centre for Innovative Practice
The appreciation of the Australian dollar has been a concern as Australia has become less competitive compared to neighbouring countries. This paper investigates to what extent exchange rates could adversely affect Australia's inbound tourism and whether volatility in exchange rates could increase the uncertainty in international tourist arrivals to Australia. The study is based on nine countries of origin, namely China, India, Japan, Malaysia, New Zealand, Singapore, South Korea, the UK and the USA for the period January 1991 to January 2011. It uses multivariate conditional volatility regressions to model the time-varying conditional variances of international tourism growth and exchange rates. Empirical findings show that tourists from Malaysia and New Zealand are relatively more sensitive to currency shocks than the others. Nevertheless, tourists' memories of the shocks could diminish in the long-run, suggesting that the sudden appreciation of the Australian dollar will not have long-term negative impacts on Australia's inbound tourism.