Impact of monetary policy on China’s tourism market development: An application of factor –augmented vector auto-regression (FAVAR) model

The present research aims to shed light on the effects of monetary policy on China’s tourism market development from 2004 to 2016. Monetary policy plays an increasingly important role in China’s economy. With the Chinese economy in rapid development, the country’s tourism market experienced significant growth. This study uses the Granger Causality test and factor-augmented vector auto-regression (FAVAR) model to identify the effects of monetary policy on China’s tourism market through four transmission mechanism channels. Our results show that macroeconomic growth promotes China’s tourism market development. Moreover, the money supply channel, exchange rate channel, and other assets channel have significant and adverse effects on China’s tourism market development.