Oil Prices, Terms of Trade Shocks, and Macroeconomic Fluctuations in Saudi Arabia |
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| Authors: | Sel Diboo&#;lu Eisa Aleisa |
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| Institution: | Diboo?lu:;Associate Professor, Department of Economics, SIUC Mail Code 4515, Southern Illinois University, Carbondale, IL 62901-4515. Phone 1-618-453-5075, Fax 1-618-453-2717, E-mail Aleisa:;Economic Adviser, Research and Statistics Department, Saudi Arabian Monetary Agency, P.O. Box 2992, Riyadh, 11169, Kingdom of Saudi Arabia. Phone 966-1-463-3000, Fax 966-1-466-2439, E-mail: . |
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| Abstract: | The article investigates the sources of macroeconomic fluctuations in Saudi Arabia using structural vector autoregression methods and pays particular attention to oil prices and changes in terms of trade. Using a macroeconomic model tailored to the Saudi Arabian economy, the authors identify terms of trade, supply, balance of payments, aggregate demand, and monetary shocks. The results show that the Saudi Arabian price level, real exchange rate, and to a lesser extent output is vulnerable to terms of trade shocks. Moreover, Saudi Arabian terms of trade are driven by output, trade balance, and aggregate demand shocks. To stabilize output and the real exchange rate, Saudi Arabia ought to continue diversifying its production base and aim for a stable nominal oil price. (JEL E32 , Q43 , C22 ) |
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