Inflation in Tourism Sector: New Evidence From Climate and Geopolitical Spillover Effects

Abstract

Tourism is a critical sector that significantly contributes to the global economy, yet it is highly susceptible to external shocks. This paper examines the impact of geopolitical and climate shocks on tourism inflation across major European tourism destinations (1997M1–2023M12). To the best of our knowledge, no previous studies have systematically addressed how the climate and geopolitical spillover effects asymmetrically influence the transmission dynamics of tourism inflation. We perform Quantile Connectedness, TVP-VAR extended joint connectedness, and nonparametric locally polynomial quantile regression methodologies that allow us to explain heterogeneous inflation dynamics, offering valuable insights for policymakers and stakeholders. Our results show that the information transmission of both geopolitical and climate shocks is asymmetric, but the geopolitical risk is more pronounced. Our findings have substantial policy implications, exposing the chaotic influence of the multipolar international system and climate change, thus dismantling the notion that inflation is purely an economic phenomenon.