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Oil Prices, Terms of Trade Shocks, and Macroeconomic Fluctuations in Saudi Arabia

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  • Sel Dibooğlu
  • Eisa Aleisa
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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") Copyright 2004 Western Economic Association International.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

    Volume (Year): 22 (2004)
    Issue (Month): 1 (01)
    Pages: 50-62

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    Handle: RePEc:bla:coecpo:v:22:y:2004:i:1:p:50-62

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    Cited by:
    1. Habib, Maurizio Michael & Kalamova, Margarita Manolova, 2007. "Are there oil currencies? The real exchange rate of oil exporting countries," Working Paper Series 0839, European Central Bank.
    2. Delavari, Majid & Gandali Alikhani, Nadiya, 2013. "The Dynamic Effects of Crude Oil and Natural Gas Prices on Iran's Methanol," MPRA Paper 49733, University Library of Munich, Germany.
    3. Mehrara, Mohsen & Oskoui, Kamran Niki, 2007. "The sources of macroeconomic fluctuations in oil exporting countries: A comparative study," Economic Modelling, Elsevier, vol. 24(3), pages 365-379, May.

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