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External Linkages and Policy Constraints in Saudi Arabia

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  • Niklas J Westelius

Abstract

The constraints that external linkages impose on domestic policy choices in Saudi Arabia have continuously evolved over the past four decades. This paper argues that two major ongoing developments in particular have affected and will continue to affect policy trade-offs. First, growing oil needs of emerging market economies (EMEs), and specifically those of developing Asia, have strengthened economic links between the Far East and Saudi Arabia. Second, financial sector development in Saudi Arabia has gradually strengthened the monetary transmission mechanism. The former implies the increased importance of developing Asia’s growth cycle for the Saudi economy, while the latter suggests greater influence of U.S. monetary policy on the non-oil economy through the peg to the U.S dollar. As a result, divergence between the growth cycles in developing Asia and the United States has the potential to increasingly generate tension between policy objectives in Saudi Arabia.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/59.

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Length: 30
Date of creation: 05 Mar 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/59

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Keywords: Monetary policy; Saudi Arabia; United States; Asia; Monetary transmission mechanism; Fiscal policy; Foreign labor; Capital flows; Business cycles; Oil prices; Oil production; Financial sector; oil revenues; oil exports; export revenues; oil export revenues; oil shock; global production; export sector; exchange rate policy; domestic economy; exporter; trading partner; domestic banking system; global market; global supply; domestic investment; trade flows; export receipts; output volatility; exporting countries; oil exporters; imported goods; commodity exports; import prices; pattern of trade; investor confidence; total exports; merchandise imports; economic outcomes; international trade; institution building; growing trade; oil-exporting countries; balance sheets; price of exports; price stability; open market; interest groups; external financing; national security;

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  1. Marvin Goodfriend & Robert King, 2005. "The Incredible Volcker Disinflation," NBER Working Papers 11562, National Bureau of Economic Research, Inc.
  2. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
  3. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
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