Decomposing a time-frequency relationship between economic policy uncertainty and tourism in the G8 countries through wavelet analysis

ABSTRACT

This paper aims to examine the relationship between economic policy uncertainty (EPU) and tourism activities in the Group of Eight countries using wavelet transform context structures. This innovative technique allows the decomposition of time-series at different time frequencies. In this work, we used continuous wavelets, wavelet coherency and wavelet phase-difference based on Granger causality analysis to investigate the relationship between EPU and tourism. Results indicate that the relationship is generally negative but changes over time, displaying low to high frequency cycles. Moreover, the timing and frequency change when EPU co-moves with tourism. Accordingly, it can be recommended that the government increase and promote tourism demand and further provide and nurture the expansion of the tourism supply.

KEYWORDS:

• Tourism activities
• economic policy uncertainty
• wavelet analysis
• time domains
• frequency domains

Acknowledgements

This study was supported by Department of Education of Guangdong Province (Grant Number 2018WTSCX214).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The basics of wavelets forms are shown in Appendix 1.

2 Without smoothing, the squared wavelet coherence would be always one at any frequency and time. Smoothing is achieved by convolution in time and frequency; see Torrence and Compo (1998) for details.

Additional information

Funding

This study was supported by Department of Education of Guangdong Province [grant number 2018WTSCX214].