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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.

Suggested Citation

  • Niklas J Westelius, 2013. "External Linkages and Policy Constraints in Saudi Arabia," IMF Working Papers 13/59, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/59
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40367
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    References listed on IDEAS

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    1. Goodfriend, Marvin & King, Robert G., 2005. "The incredible Volcker disinflation," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 981-1015, July.
    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 228-248, April.
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    Cited by:

    1. Faudot, Adrien, 2014. "Le régime rentier d’accumulation en Arabie saoudite et son mode de régulation," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 16.

    More about this item

    Keywords

    Saudi Arabia; oil revenues; oil prices; oil exports; oil export; export revenues; Institutions and the Macroeconomy; General; Global Outlook;

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