Response of Saudi Arabian Economy to Oil Price Shock : An Empirical Study
This paper assesses the impact of oil price shocks on Saudi Arabia’s economy. Saudi Arabia is an oil-based economy with strong government controls over major economic activities. Principal objective of this exercise is to trace the dynamic reactions of Saudi macroeconomic variables such as inflation, revenue, economic activity to oil price shocks, with a special focus on the influence on Real Effective Exchange Rate (REER) and Money Supply, given there is a paucity of work on impact of oil price shock on Saudi Arabia’s Money Supply and Real Effective Exchange rate. Structural Vector Auto-Regressive model is employed to understand the impact of oil price shock on the above-mentioned variables. Almost all macroeconomic indicators are sensitive to oil price shock, according to the variance decomposition study; except inflation, all variables are strongly explained by oil price. Case of Saudi Arabia points towards the fact of delegating more power to monetary agency of Saudi Arabia to deal with the international price fluctuation in order to ensure macro-economic stability. Reaction of Money Supply and REER to oil price fluctuation shows that role of Monetary authority is limited to maintaining exchange rate stability as Saudi currency is pegged to US dollars
Year of publication: |
[2022]
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Authors: | syed, shahzeb Mohd ; Khushwaha, Himanshu |
Publisher: |
[S.l.] : SSRN |
Subject: | Ölpreis | Oil price | Saudi-Arabien | Saudi Arabia |
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