Integrating forecasting and CGE models: The case of tourism in Scotland

Abstract

Information about current and forecast levels of tourism and its contribution to the economy is important for policy making by businesses and governments. Traditional forecasting methods can provide reasonable forecasts in the context of predictable changes. However, forecasting becomes problematic in the context of both predictable changes and less predictable domestic or international shocks. This paper demonstrates the ways in which an integrated model, combining traditional forecasting methods and quantifiable forecasts from a computable general equilibrium model, can be used to examine combinations of events. The model is applied to Scotland and combines tourism indicators with structural time-series forecasting and CGE impact analysis. Results are provided for changes in exchange rates, income of major origin countries and a positive shock to tourism demand, to demonstrate the integrated model's ability to take account of the multiple events that affect tourism destinations.