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Oil price dynamics and fiscal policy cyclicality in Saudi Arabia: New evidence from partial and multiple wavelet coherences

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  • Hathroubi, Salem
  • Aloui, Chaker

Abstract

In this paper, we analyse the dynamic cyclical co-movements between oil prices and macroeconomic leading variables in Saudi Arabia within a time-frequency approach. Specifically, we check the relevance of the cyclicality of non-oil GDP, public expenditure, and trade balance with oil price cycles. To overcome the deficiency of traditional econometric methods and standard wavelet correlation methods, our study uses partial and multiple wavelet coherence for an annual data set covering the period 1970–2016. Our findings unveil a high level of coherence between the four variables and these linkages are changing through time scales and frequency bands. Specifically, we uncover pro-cyclical fiscal policy through a negative correlation between non-oil balance and oil prices and via a positive correlation between government spending and changes in oil prices. Our results offer several conspicuous implications and operational recommendations for Saudi policymakers and regulators, especially when elaborating the Government budget.

Suggested Citation

  • Hathroubi, Salem & Aloui, Chaker, 2022. "Oil price dynamics and fiscal policy cyclicality in Saudi Arabia: New evidence from partial and multiple wavelet coherences," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 149-160.
    • Handle: RePEc:eee:quaeco:v:85:y:2022:i:c:p:149-160
    DOI: 10.1016/j.qref.2020.12.002
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    More about this item

    Keywords

    Cyclicality; Fiscal policy; Oil prices; Partial and multiple wavelet coherence; Saudi Arabia;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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