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Sources of real exchange rate movements in Saudi Arabia

Author

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  • Eisa Aleisa
  • Sel Dibooĝlu

Abstract

The paper investigates the sources of real exchange rate movements in Saudi Arabia by decomposing real exchange rate movements into those attributable to real and nominal shocks. Using a popular structural VAR model and assuming long-run neutrality of nominal shocks, we find that real shocks play a significant role in explaining real exchange rate movements in Saudi Arabia. Using a more disaggregated model, we also find that oil production shocks rather than real oil price shocks are responsible for real exchange rate movements. In order to stabilize the real exchange rate, Saudi Arabia should focus on stabilizing oil production.(JEL F3, C5) Copyright Springer 2002

Suggested Citation

  • Eisa Aleisa & Sel Dibooĝlu, 2002. "Sources of real exchange rate movements in Saudi Arabia," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 26(1), pages 101-110, March.
    • Handle: RePEc:spr:jecfin:v:26:y:2002:i:1:p:101-110
    DOI: 10.1007/BF02744455
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    References listed on IDEAS

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    1. Stockman, Alan C., 1988. "Real exchange-rate variability under pegged and floating nominal exchange-rate systems: An equilibrium theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 259-294, January.
    2. Enders, Walter & Lee, Bong-Soo, 1997. "Accounting for real and nominal exchange rate movements in the post-Bretton Woods period," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 233-254, April.
    3. Robin Sickles & Peter Hartley, 2001. "A Model of Optimal Dynamic Oil Extraction: Evidence From a Large Middle Eastern Field," Journal of Productivity Analysis, Springer, vol. 15(1), pages 59-71, January.
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    Cited by:

    1. Razek, Noha & Galvani, Valentina & McQuinn, Brian & Rajan, Surya, 2025. "Does Saudi Arabia's International Competitiveness Improve Due to Sanctions Imposed on Competitors? The case of two wars," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 457-482.
    2. Belloumi, Mounir & Aljazea, Ahmed & Alshehry, Atef, 2023. "Study of the impact of crude oil prices on economic output and inflation in Saudi Arabia," Resources Policy, Elsevier, vol. 86(PA).
    3. Razek, Noha H.A. & McQuinn, Brian, 2021. "Saudi Arabia's currency misalignment and international competitiveness, accounting for geopolitical risks and the super-contango oil market," Resources Policy, Elsevier, vol. 72(C).
    4. Shu Tong & Mohammed Majdy M. Baslom & Hussain Zaid H. Alsharif, 2018. "Investigating Volatility in Saudi Arabia Crude Oil Prices and its impact on oil Stock Market," International Journal of Energy Economics and Policy, Econjournals, vol. 8(4), pages 338-346.
    5. Jumah Ahmad Alzyadat, 2024. "The Oil Price Shocks and the Monetary Stability in Saudi Arabia," International Journal of Energy Economics and Policy, Econjournals, vol. 14(6), pages 32-39, November.
    6. Olamide T. Ojikutu & Rita U. Onolemhemhen & Sunday O. Isehunwa, 2017. "Crude Oil Price Volatility and its Impact on Nigerian Stock Market Performance (1985-2014)," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 302-311.
    7. Fakhri J. Hasanov & Noha Razek, 2023. "Oil and Non-Oil Determinants of Saudi Arabia’s International Competitiveness: Historical Analysis and Policy Simulations," Sustainability, MDPI, vol. 15(11), pages 1-39, June.
    8. Gunbileg Ganbayar, 2021. "An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach," JRFM, MDPI, vol. 14(11), pages 1-16, November.
    9. Tayfur Bayat & Saban Nazlioglu & Selim Kayhan, 2015. "Exchange Rate and Oil Price Interactions in Transition Economies: Czech Republic, Hungary and Poland," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(3), pages 267-285, June.
    10. Fardous Alom, 2014. "Oil Price-Macroeconomic Relationship in Australia and New Zealand: Application of a Hidden Cointegration Technique," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 6(2), pages 105-128, July.
    11. Alom, Fardous, 2011. "Economic Effects of Oil and Food Price Shocks in Asia and Pacific Countries: An Application of SVAR Model," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115346, New Zealand Agricultural and Resource Economics Society.
    12. Merve Osmanbeyoglu & Nukhet Dogan & M. Hakan Berument, 2022. "Exchange rate regime, world oil prices and the Mexican economy," International Journal of Economic Policy Studies, Springer, vol. 16(1), pages 159-178, February.
    13. Salah A. Nusair & Khalid M. Kisswani, 2015. "Asian Real Exchange Rates And Oil Prices: A Cointegration Analysis Under Structural Breaks," Bulletin of Economic Research, Wiley Blackwell, vol. 67(S1), pages 1-25, December.
    14. Zahid Muhammad & Hassan Suleiman & Reza Kouhy, 2011. "Exploring oil price – exchange rate nexus for Nigeria," FIW Working Paper series 071, FIW.
    15. Mathew Ekundayo Rotimi & Harold Ngalawa, 2017. "Oil Price Shocks and Economic Performance in Africa’s Oil Exporting Countries," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(5), pages 169-188, OCTOBER.
    16. Rashid Abdul & Jehan Zainab & Tahira Maria & Javed Amir, 2024. "Do Exchange Rates Respond Asymmetrically to Crude Oil Market Shocks? Insights from BRICS and Pakistan," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 31-62.
    17. Musa Foudeh, 2017. "The Long Run Effects of Oil Prices on Economic Growth: The Case of Saudi Arabia," International Journal of Energy Economics and Policy, Econjournals, vol. 7(6), pages 171-192.
    18. Nusair, Salah A. & Olson, Dennis, 2019. "The effects of oil price shocks on Asian exchange rates: Evidence from quantile regression analysis," Energy Economics, Elsevier, vol. 78(C), pages 44-63.
    19. Shahzeb Syed Mohd & Khushwaha Himanshu, 2025. "Assessing the Macroeconomic Implications of Oil Price Fluctuations in Saudi Arabia: An SVAR-based Study," Zagreb International Review of Economics and Business, Sciendo, vol. 28(1), pages 7-29.
    20. Bwo-Nung Huang & Chi-Chuan Lee & Yu-Fang Chang & Chien-Chiang Lee, 2021. "Dynamic linkage between oil prices and exchange rates: new global evidence," Empirical Economics, Springer, vol. 61(2), pages 719-742, August.
    21. Al-mulali, Usama & Che Sab, Normee, 2009. "The Impact of Oil Prices on the Real Exchange Rate of the Dirham: a Case Study of the United Arab Emirates," MPRA Paper 23493, University Library of Munich, Germany.
    22. Alarudeen Aminu & Isiaka Akande Raifu, 2019. "Dynamic Nexus between Oil Revenues and Economic Growth in Nigeria," Economics Bulletin, AccessEcon, vol. 39(2), pages 1556-1570.
    23. Naeem Ur Rehman Khattak & Muhammad Tariq & Jangraiz Khan, 2012. "Factors Affecting the Nominal Exchange Rate of Pakistan: An Econometric Investigation (1982-2008)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(2), pages 421-428, June.
    24. Jeffrey Frankel, 2017. "The Currency-Plus-Commodity Basket; A Proposal for Exchange Rates in Oil-Exporting Countries to Accommodate Trade Shocks Automatically," CID Working Papers 333, Center for International Development at Harvard University.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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