Determining hotel room rates: Domestic economic policy uncertainty and crises

Abstract

Although the impacts of economic policy uncertainty (EPU) on different aspects of the hospitality industry have been studied, none analyzes the effects of EPU on the hotel room rates. To close this gap, using the monthly data from January 2008 to November 2019, this paper investigates the influences of Singapore’s EPU (hereafter domestic EPU) on the hotel room rates of two types of hotels, luxury and economy, in Singapore with cointegration technique and error correction model. Although prior research findings suggest that economic and disease crises, and EPU have negative effects on the dependent variable of interest, the results of this study do not always support this. The findings of this study show domestic EPU has a negative impact on the room rates of economy hotels, but no impact on the room rates of luxury hotels; and Global Financial Crisis has a negative effect on the room rates of luxury hotels, but no effect on the room rate of economy hotels. To avoid the omission of important independent variables, domestic economic condition and inbound tourism are included as other independent variables.