Tourism in Iceland: Persistence and seasonality

•Tourism in Iceland is examined using fractional integration.•With annual data, unit roots cannot be rejected.•With monthly data, a break is found at 2009m7 and mean reversion takes place.•The conclusion is that exogenous shocks are transitory disappearing relatively fast.•Policy implications are reported. This paper analyses tourism in Iceland using fractional integration and taking into account the seasonality and the degree of persistence in the data. Using annual data, the unit root hypothesis cannot be rejected, implying permanency of shocks. However using, monthly data, a break is found at 2009m7 and the orders of integration are in the interval (0, 0,5) suggesting mean reversion. The conclusion is that exogenous shocks impacting inbound tourism do not persist and tend to disappear relatively fast. The key policy implications thereof are reported at the end of the paper, critiquing the classical response to perceived slumps in inbound tourism that include marketing and promotion instead of developing infrastructure in anticipation of resumed growth in inbound tourism.