Tourism Intensity and Regional Monetary Transmission: Evidence from the Algarve

Abstract This study investigates regional heterogeneity in the transmission of monetary policy within a tourism-dependent economy, focusing on Portugal’s NUTS II regions and the Algarve as a case study. Using quarterly panel data from 2000Q1 to 2024Q4, the analysis combines high-frequency identified European Central Bank (ECB) monetary policy shocks with a tourism-intensity index to estimate dynamic responses through a local projection framework. The results reveal that tourism-intensive regions experience significantly larger and more persistent contractions in tourism activity, employment, and housing markets following monetary tightening. In particular, tourism demand emerges as the dominant transmission channel, accounting for nearly half of the differential regional response. Housing and credit channels further amplify these effects, reflecting the strong link between tourism activity and real estate markets. Robustness checks confirm that these findings are not driven by the COVID-19 period, alternative identification strategies, or measurement approaches. The results highlight the importance of sectoral specialization in shaping monetary transmission and demonstrate that a uniform monetary policy can generate asymmetric regional outcomes within a currency union. These findings carry important implications for macroprudential policy design and regional economic resilience in tourism-dependent economies.