No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
The Impact of Oil Price Volatility on Welfare in the Kingdom of Saudi Arabia: Implications for Public Investment Decision-Making
Abstract
Since real oil price is positively correlated with real consumption and domestic income in Saudi Arabia, a risk premium should be considered when assessing the net present value of oil-related public investment projects. For projects generating additional oil exports, this risk premium quantifies the cost of increased dependence on oil revenues. For projects transforming oil into products whose prices are less correlated with the Saudi economy, it quantifies the benefit from economic diversification. The value of this risk premium depends on expectations about future consumption and oil price. By considering alternative assumptions, we show that over a one-year horizon this risk premium could range between 1.3% and 5% of the expected oil-related cash flow, with higher premia for longer planning horizons. We discuss the implications of these calculations for energy-related public projects in Saudi Arabia and, more generally, for public decision-making in resource-rich countries.
... We use the same figure for the year 2050. In line with the value determined by Pierru and Matar (2014) for Saudi Arabia, we use a discount rate of 4%. By applying Eqs. ...
... For instance, it can be used as an input in projects that contribute to economic diversification (which lessens a country's dependence on oil revenues). The economic diversification benefits attributable to these projects are then directly included in the projects' net present value calculation (Pierru and Matar, 2014). The oil used in these projects has to be valued at the opportunity cost, such as determined in this paper. ...
In this paper, we develop a partial-equilibrium framework to assess the opportunity cost of domestic oil consumption for an oil-exporting country. We show that the opportunity cost depends on various factors, including the constraints to which the oil producer is subject and the domestic oil pricing scheme. Moreover, through an application of the envelope theorem, we assess net welfare gains that can be generated from a reform of the domestic oil price. Our results show that the most efficient pricing policy is to set the domestic price equal to the opportunity cost. A numerical illustration for Saudi Arabia is provided to demonstrate the practical value of the proposed framework. Our findings can inform public decision-making in resource-rich countries that aim to diversify their economies away from oil revenues.
... The uncertainty surrounding the rate of economic growth has a social cost for risk-averse agents, usually measured as the loss of welfare that a representative agent is willing to incur to remove fluctuations in consumption. Though this cost might be negligible in certain economies, it can be significant for countries that rely on commodity export revenue, as shown by Pierru and Matar (2014) in the case of Saudi Arabia, where they calculate a risk premium of up to 5% on export revenues. Furthermore, Aghion and Banerjee (2005) find that revenue volatility impedes economic growth by creating two problems. ...
... Following Pierru and Matar (2014), who consider a coefficient of relative risk aversion of 2 for Saudi Arabia, we use the following constant-relative-risk-aversion utility function: ...
We develop an analytical approach that offers insights into how governments can better manage an oil-revenue stabilization fund. The model maximizes the expected intertemporal utility of households and consists of decisions that are a function of the fund level and oil revenue. We apply our approach to Saudi data, noting that the government deposits and reserve at the Saudi Arabian Monetary Agency have historically served as a buffer to decouple the Saudi government budget from oil revenue fluctuations. Results from our model match intuition: the larger the fund, the smaller the additions during periods of high revenues and the bigger the withdrawals during periods of low revenues. We also show that the fund can be partitioned into tranches with different asset durations rather than being solely invested in short-term assets. Our results indicate that the boundary between an oil-revenue stabilization fund and a sovereign wealth fund is not a bright line.
... In the last 60 years, when the role of oil in the world economy began to increase rapidly, most of the economic scientists and specialists, politicians, national and international financial institutions and research centers touched on this topic. Grennes and Winokur (1974), Lienert (1981), Jan Fabritius and Petersen, (1981), Jones (1982), Shaffer and Fischer (1982), Helliwell et al. (1982), Looney (1985), Stauffer (1985), Hammoudeh (1988), Adelman (1989), Choucri et al. (1990), Smith (1992), Huntington (1998), Acemoglu et al. (2013), Caselli and Michaels, (2013), Kennedy and Tiede (2013), Pierru and Matar (2014), Brueckner and Gradstein, (2016), Usman (2017), Hassler et al. (2017), , , Murshed (2018), Baumeister et al. (2018), González (2018), Boyd et al. (2000), Zallé (2022). Al-Abri et al. (2019) have identified and examined the phenomenon of the "oil curse" for Oman, the long-and short-term interactions between economic growth from non-extractive sectors, oil revenues and government expenditures by using quarterly data covering the period 2000-2015 together with the use of a vector autoregressive regression (VAR) co-integration model. ...
Since Azerbaijan is one of the oil exporting countries, its macroeconomic indicators, especially the exchange rate, the state budget are highly dependent on the oil factor. This study assessed the role of oil in the economy and the impact of the oil factor on the revenues and expenditures of the state budget of Azerbaijan in manat and dollar terms. The study covers the period 2005m03 − 2022m05. Unit root (Augmented Dickey−Fuller (ADF), Phillips−Perron (PP) and Kwiatkowski−Phillips−Schmidt−Shin (KPSS)) tests were applied to check the stationarity of variables (time series). ARDL was applied as a research method. In terms of the reliability of the obtained results, the error correction model (ECM) was used, standard tests were carried out, and the joint integration methods of FMOLS, DOLS and CCR were also applied in the evaluation. Engel−Granger and Phillips−Ouliaris tests have been used to test for cointegration interactions between variables. Short−term, long−term, and strong associations between variables were also calculated. The results of the study showed that the state budget depends on the oil and gas sector, and fluctuations in world oil prices functionally and along the chain affect oil revenues and the state budget. A different impact of oil prices (oil revenues) on the state budget in terms of manat and dollar was the devaluation of the manat, which was carried out to reduce the impact of the global financial and economic crisis on Azerbaijan. The general conclusion of the study was a recommendation to further accelerate work on the diversification of the economy and the development of the non−oil sector. The results of the conducted research can serve as a scientific basis for the economic policy of the state aimed at reducing the impact of external oil price shocks on the economy of Azerbaijan and other similar oil−exporting countries, including on the state budget, and diversifying the economy. The functional dependencies of the income and expenses of the state budget in terms of manat and dollar on world oil prices are given below.
... Case study method Direct distribution allows to change the country's perceived inability to effectively manage it vast natural wealth Pierru and Walid (2012) Energy-related investment opportunities for social-oriented decision-making ...
The article describes the past and future energy and natural resources policies in Russia. The authors consider the main trends and prospects in the state energy policy. The article shows the relationship between the National Welfare Fund growth and the decline in consumption. The authors argue the ability of raw materials revenues to solve problems of social financing. The analysis relies on the VAR and VECM-model to test the generated hypotheses. The model explores changes in energy prices in proportion to changes in individual factors of social and savings policies, taking into account the random component. We take the two most important elements of population income - these are social payments and wages. The article provides an opportunity to reflect on the ability of the innovative distribution of oil and gas revenues to change current social policies. The study complements our knowledge of the lack of social financing and the need to increase the real level of income.Keywords: energy prices, oil revenues, social benefits, wagesJEL Classifications: E21, E25DOI: https://doi.org/10.32479/ijeep.11147
... Using the parameter estimates given in the previous sections (with r ¼ 0:04=12 based on Pierru and Matar (2014)), Equation (6) gives the same annual value for OPEC's spare capacity to the world's economy as the one calculated by Pierru et al. (2020). Expressed 13 in 2019 prices, the annual value of OPEC's spare capacity amounts to 193.1 billion US dollars. ...
We investigate the extent to which OPEC has succeeded in its self‐stated mission of stabilising the oil market and the implications for the world’s economy. We discuss the modelling framework developed by Pierru, Smith and Zamrik (2018) and Pierru, Smith and Almutairi (2020) and update their analyses. Unstabilised monthly oil prices that would have prevailed in the absence of OPEC’s spare capacity policy are determined for the September 2001–June 2020 period. Overall, OPEC’s management of spare capacity has significantly decreased the monthly volatility of the oil price. Three subperiods (commodity boom, market‐share campaign, OPEC+) can, however, be distinguished in terms of impact on price volatility. The annual value of OPEC’s spare capacity to the world’s economy is estimated to be 193.1 billion in 2019 US dollars.
... For an idle facility located in Saudi Arabia with 40 wells and combined production capacity of 200,000 barrels per day, QUE$TOR estimates annual maintenance cost to be $410 per daily barrel, or $34.17 on a monthly basis. Thus, for an annual real discount rate of 4%, in line with Pierru and Matar's (2014) The incremental barrel of buffer capacity would only be used if there otherwise would be a shortfall. To calculate the expected incremental revenue, we consider the average price ($45.24 per barrel) observed during the three months when Saudi Arabia ran out of spare capacity (from August to October 2004) and use that price (along with the usual formula for marginal revenue) to determine the parameter f as the sum of expected monthly net financial gains over the 240-month life of the facility discounted at 4%, assuming $2 production cost per barrel 13 . ...
OPEC claims to hold and use spare production capacity to stabilize the crude oil market. We study the impact of that buffer on the volatility of oil prices. After estimating the stochastic process that generates shocks to demand and supply, and assessing OPEC’s limited ability to accurately measure and offset those shocks, we find that OPEC’s use of spare capacity has reduced price volatility, perhaps by as much as half. We also apply the principle of revealed preference to infer the implicit loss function that rationalizes OPEC’s investment in spare capacity and compare it to other estimates of the cost of crude oil supply shortfalls. That comparison suggests that OPEC’s buffer capacity was in line with global macroeconomic needs.
... Matar et al. (2015) consider different policy scenarios for reducing energy consumption in the KSA without increasing administered energy prices using a multi-sector equilibrium model with a mixed-complementarity formulation and Matar et al. (2016) use a similar approach to consider the prospects for coal-fired power generation in the KSA. Two further studies took an econometric approach: Gately et al. (2012) considered the future evolution of oil consumption and its impact on oil exports in the KSA and Pierru and Matar (2014) explored the impact of volatile oil revenues on public investment. ...
... schools, hospitals), as well as paying government employees (Bourland & Gamble, 2011). As a result, income and spending have tended to increase (decrease) during times of high (low) oil prices (Alsweilem, 2015;Pierru and Matar, 2012). Table 1 displays oil revenue as a percentage of export earnings, state budget and overall GDP in several oil-exporting countries. ...
Decision-makers often seek to design policies that support sustainable development. Prospective evaluations of how effectively such policies are likely to meet sustainability goals have nonetheless remained challenging. Evaluating policies against sustainability goals can be facilitated through the inclusive wealth framework, which characterizes development in terms of the value to society of its underlying capital assets, and defines development to be potentially sustainable if that value does not decline over time. The inclusive wealth approach has been developed at a theoretical level and applied to retrospective evaluations. Here, we apply inclusive wealth theory to prospective policy evaluation coupled with dynamic simulation modeling, using a case of electricity infrastructure policies in oil-exporting countries. To demonstrate the prospective evaluation, we analyze investment policies in non-fossil electricity capacity in terms of their forecast impact on several dimensions of inclusive wealth. Illustrative results show that investing in non-fossil capacity in Saudi Arabia and Kuwait can increase components of the countries' inclusive wealth, though the impacts depend on future uncertainties. In contrast, comparable components of the UAE's net inclusive wealth decline under similar investment policies. Finally, including human capital improvements in estimates of inclusive wealth substantially increases its value, though the amount varies across the countries.
... These concerns led the Saudis to try and curb domestic demand for oil via diversifying their energy mix and investing in energy efficiency. Investments in refining capacity within OPEC countries was used by Pierru and Matar (2014) to quantify the cost of dependence on oil revenues. Domestic consumption within OPEC countries matters -it affects the international prices of petroleum products and has profound implications to the local oil-rich economies. ...
We develop a conceptual model that captures OPEC pricing behavior, and apply it to explain the large gap observed between domestic fuel prices in OPEC countries and prices in the rest of the world. We model OPEC as a cartel of nations, not firms, and assume politician use two instruments: production quotas and domestic fuel consumption subsidies. The cartel-of-nations model suggests that introduction of alternatives to petroleum products may lead OPEC to reduce exports and increase domestic fuel consumption. The empirical analysis suggests that when OPEC sets production quotas, it places similar weights on consumers and producers surplus. But when OPEC countries set domestic fuel subsidies, on average 6% more weight is given to consumer surplus with some of the OPEC countries pursuing very aggressive domestic cheap fuel policies.
Acknowledgment:
The authors thank Richard S.J. Tol and four anonymous referees for very helpful comments and suggestions. The authors also thank seminar participants at the IAEE annual meetings at Stockholm in 2011, and seminar participants at University of Berkeley California, Rutgers University, Wyoming University, Iowa State University, University of California Davis, and University of California Riverside. The authors thank the Energy and Bioscience Institute as well as USDA/NIFA for financial support of work that led to this paper. Remaining errors are the sole responsibility of the authors.
Executive Summary The purpose of this report is to recommend an interconnected regional and international strategy to share the burden of developing and maintaining commercial and strategic storage infrastructure for Saudi crude oil and products through an alliance with the GCC and other countries overseas. If properly implemented, the project has the capacity to enhance the security of oil supply throughout the transition to a green economy. This can be achieved through the centralized tracking and management of commercial, and strategic stockpiles overseas.
China is a highly industrial country indexed high on demand for energy resources like oil and coal. It is believed that the economic factors in China, such as the gross domestic product, currency exchange rate, rate of inflation, and interest rates, can lead to creating cost surges, either positive or negative, in the prices of the commodities like oil and coal. Using a vector autoregression (VAR) model, based on data from 1981 to 2020, the researcher in the current study found a direct impact of all the factors on the volatility of coal and oil prices, except the exchange rate. The findings of this study indicate that there is a need to control economic and financial overflow So that the prices of natural resource commodities can be normalized. The policymakers in China and other similar countries can use the current study's findings to improve their economic policies, exchange rate, inflation, and other factors that contribute to the unavailability and extremely high or low prices of commodity resources.
This paper focuses on the impact of oil, natural gas and coal price shocks on the
Spanish business cycle from 1969 to 2013. It uses Bayesian procedures to estimate
a Dynamic Stochastic General Equilibrium (DSGE) model for a small open economy.
The paper shows that natural gas and coal shocks are relevant sources of
macroeconomic disruption in addition to oil price shocks. The three fossil fuel
prices have an impact on the economic activity and explain the evolution of the
energy mix. However, we find that oil price shocks have a significantly larger
impact on economic volatility. Finally, we assess the impact of hydrocarbon price
shocks on carbon emissions given that different price shocks result in a different
fossil fuel mix and, thus, in different CO2 emissions.
The Kingdom of Saudi Arabia relies exclusively on oil and natural gas as its primary energy sources. A number of studies show that, on a business as usual trajectory, Saudi Arabia is on a path to becoming a net oil importer by the 2030s, and this drastic paradigm shift would substantially impact government revenues and global energy governance, and potentially increase greenhouse gas emissions. Among all sectors, electricity and water desalination sectors represent 42% of total primary energy consumed in Saudi Arabia and are growing faster than the national gross domestic product (GDP). On the other hand, demand-side management (DSM) technologies offer promising energy saving opportunities. This paper primarily forecasts the growing electricity demand and analyzes the effects of weather on electricity demand in Saudi Arabia, up to year 2040, using a weather-based long-term electricity demand forecasting model by adopting a hybrid approach using end-use and econometric methods. In addition, the paper uses an integrated electricity model that quantifies, technically and economically, the relationship between climate conditions and electricity consumption that can raise awareness of climate change, particularly on investments in energy efficiency measures such as heating and cooling equipment. Using the results of this forecast, the paper identifies which DSM and energy efficiency programs are economically feasible and when, as well as in which sectors and end-uses they should be implemented to realize maximum economic, environmental, and social benefits. http://www.usaee.org/usaee2016/submissions/OnlineProceedings/9699-AlabbasN.pdf
How to integrate the risk into the economic calculation?
In this paper, I explain why it is sensible to discount future risk free costs and benefits at a rate of 4% in the short run and of 2% in the long run. The riskiness of future cash flows must be taken into account by imputing risk premia rather than by an arbitrary increase in the discount rate. Option values must also be integrated in the analysis. This suggests that the recent reduction of the discount rate proposed by the Commissariat au Plan should not massively increase the number of public investment projects with a positive NPV if risk is correctly integrated in the cost-benefit analysis.
Real GDP tends to underestimate the increase in real domestic income and welfare when the terms of trade improve. An improvement in the terms of trade is similar to a technological progress, but when computing real GDP, the national accounts treat the former as a price phenomenon and the latter as a real event. Calculations for 26 countries show that the divergence can add up to more than 10% of GDP in less than two decades. Our analysis has a solid theoretical foundation, being based on the GNP/GDP function approach to modeling the production sector of an open economy.
This paper studies the sources of macroeconomic fluctuations in oil-exporting countries using a structural VAR approach. By imposing long-run restrictions on a VAR model, four structural shocks are identified: nominal demand, real demand, supply, and oil price shocks. This framework is applied to Iran, Saudi Arabia, Kuwait, and Indonesia. Oil price shocks are shown to be the main source of output fluctuations in Saudi Arabia and Iran, but not in Kuwait and Indonesia. The results can be attributed to the relatively successful experience of Kuwait in the use of stabilization and savings fund and the right structural reforms particularly diversifying away from resource-based production in Indonesia.
With climate change as prototype example, this paper analyzes the implications of structural uncertainty for the economics of low-probability, high-impact catastrophes. Even when updated by Bayesian learning, uncertain structural parameters induce a critical "tail fattening" of posterior-predictive distributions. Such fattened tails have strong implications for situations, like climate change, where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages. This paper shows that the economic consequences of fat-tailed structural uncertainty (along with unsureness about high-temperature damages) can readily outweigh the effects of discounting in climate-change policy analysis. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
This book updates and advances the theory of expected utility as applied to risk analysis and financial decision making. Von Neumann and Morgenstern pioneered the use of expected utility theory in the 1940s, but most utility functions used in financial management are still relatively simplistic and assume a mean-variance world. Taking into account recent advances in the economics of risk and uncertainty, this book focuses on richer applications of expected utility in finance, macroeconomics, and environmental economics. The book covers these topics: expected utility theory and related concepts; the standard portfolio problem of choice under uncertainty involving two different assets; P the basic hyperplane separation theorem and log-supermodular functions as technical tools for solving various decision-making problems under uncertainty; s choice involving multiple risks; the Arrow-Debreu portfolio problem; consumption and saving; the equilibrium price of risk and time in an Arrow-Debreu economy; and dynamic models of decision making when a flow of information on future risks is expected over time. The book is appropriate for both students and professionals. Concepts are presented intuitively as well as formally, and the theory is balanced by empirical considerations. Each chapter concludes with a problem set.
In this paper I offer a fairly complete account of the idea of social discount rates as applied to public policy analysis. I show that those rates are neither ethical primitives nor observables as market rates of return on investment, but that they ought instead to be derived from economic forecasts and society's conception of distributive justice concerning the allocation of goods and services across personal identities, time, and events. However, I also show that if future uncertainties are large, the formulation of intergenerational well-being we economists have grown used to could lead to ethical paradoxes even if the uncertainties are thin-tailed. Various modelling avenues that offer a way out of the dilemma are discussed. None is entirely satisfactory.
Our path of economic development has generated a growing list of environmental problems including the disposal of nuclear waste, exhaustion of natural resources, loss of biodiversity, climate change, and polluted land, air, and water. All these environmental problems raise the crucial challenge of determining what we should and should not do for future generations. It is also central to other policy debates, including, for example, the appropriate level of public debt, investment in public infrastructure, investment in education, and the level of funding for pension benefits and for research and development. Today, the judge, the citizen, the politician, and the entrepreneur are concerned with the sustainability of our development. The objective ofPricing the Planet's Futureis to provide a simple framework to organize the debate on what we should do for the future. A key element of analysis by economists is the discount rate--the minimum rate of return required from an investment project to make it desirable to implement. Christian Gollier outlines the basic theory of the discount rate and the various arguments that favor using a smaller discount rate for more distant cash flows. With principles that can be applied to many policy areas,Pricing the Planet's Futureoffers an ideal framework for dynamic problems and decision making.
Notes de Synthèse N° 233, Centre Analyse Stratégique, Paris, Juillet 2011
We analyze the rapid growth of Saudi Arabia’s domestic oil consumption, a nine-fold increase in 40 years, to nearly 3 million barrels per day, about one-fourth of production. Such rapid growth in consumption – 5.7% annually, which is 37% faster than its income growth of 4.2% – will challenge Saudi Arabia’s ability to increase its oil exports, which are relied upon in long-term world oil projections by the International Energy Agency (IEA), US Department of Energy (DOE) and British Petroleum (BP). However, these institutions assume unprecedented slowdowns in Saudi oil consumption – from 5.7% annual growth historically to less than 2% in the future – allowing them to project increases in Saudi oil exports. Using 1971-2010 data, we estimate that the income responsiveness (elasticity) of oil consumption is at least 1.5 – using both Ordinary Least Squares regression and Cointegration methods. We believe that continued high growth rates for domestic oil consumption are more likely than the dramatic slowdowns projected by IEA, DOE and BP. This will have major implications for Saudi production and export levels.
The persistent uncertainty about mid-century CO2 emissions targets is likely to affect not only the technological choices that energy-producing firms will make in the future but also their current investment decisions. We illustrate this effect on CO2 price and global energy transition within a MERGE-type general-equilibrium model framework, by considering simple stochastic CO2 policy scenarios. In these scenarios, economic agents know that credible long-run CO2 emissions targets will be set in 2020, with two possible outcomes: either a “hard cap” or a “soft cap”. Each scenario is characterized by the relative probabilities of both possible caps. We derive consistent stochastic trajectories—with two branches after 2020—for prices and quantities of energy commodities and CO2 emissions permits. The impact of uncertain long-run CO2 emissions targets on prices and technological trajectories is discussed. In addition, a simple marginal approach allows us to analyze the Hotelling rule with risk premia observed for certain scenarios.
This paper uses Organisation for Economic Co-operation and Development (OECD) data to examine changes in labour productivity, real gross domestic product (GDP), real gross domestic income (GDI), economic aggregates and relative economic growth over time. Real GDI combines changes in production (real GDP), with a trading gain derived from relative price changes. The paper considers two sources of trading gains: the terms of trade and the real exchange rate. For OECD countries, the terms of trade is the more important price ratio, making a contribution to real income growth that is, on average, an order of magnitude larger than the real exchange rate. Over long time periods, the most important source of real income growth is changes in production. Over shorter time horizons, however, the trading gain can make noteworthy contributions. Changes in aggregates, like real private consumption or the relative economic performance of nations, are shown to be particularly dependent on the trading gain during the large swings in resource prices that occurred after 2002.
Over the past half century, Americans spent a rising share of total economic resources on health and enjoyed substantially
longer lives as a result. Debate on health policy often focuses on limiting the growth of health spending. We investigate
an issue central to this debate: Is the growth of health spending a rational response to changing economic conditions—notably
the growth of income per person? We develop a model based on standard economic assumptions and argue that this is indeed the
case. Standard preferences—of the kind used widely in economics to study consumption, asset pricing, and labor supply—imply
that health spending is a superior good with an income elasticity well above one. As people get richer and consumption rises,
the marginal utility of consumption falls rapidly. Spending on health to extend life allows individuals to purchase additional
periods of utility. The marginal utility of life extension does not decline. As a result, the optimal composition of total
spending shifts toward health, and the health share grows along with income. In projections based on the quantitative analysis
of our model, the optimal health share of spending seems likely to exceed 30 percent by the middle of the century.
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, Oxford University Press.
I show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion (γ) in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor. I bound the degree of complementarity using data on consumption choices when labor supply varies across states. Using labor supply elasticity estimates, I find a mean estimate of γ ≈ 1, then show generating γ > 2 requires that wage increases cause sharper labor supply reductions. (JEL D81 J22 )
This paper examines the institutions and then estimates a VAR model of the Saudi economy. The results indicate that the Saudi economy was influenced by world inflation and by Saudi oil policy. These results suggest that a small open economy with fixed exchange rates dependent on a single export commodity will have difficulty conducting independent monetary policy. Monetary policy may be endogenous to export-generated revenues. These results need not generalize to other small open economics. However, they suggest that small economies likely have different causal flows than large economies, and analysis of their institutional details is a preprequisite for understanding internal economic relationships.
The rapid growth of domestic oil consumption in Saudi Arabia and the opportunity cost of oil exports forgone
- D Gately
- N Al-Yousef
- H Al-Sheikh
Gately, D., N. Al-Yousef N. and H. Al-Sheikh (2012). "The rapid growth of domestic oil consumption in Saudi Arabia and
the opportunity cost of oil exports forgone." Energy Policy 47(August): 57-68. http://dx.doi.org/10.1016/j.enpol.2012.
04.011.
Gollier et al. (2011). "Le calcul du risque dans les investissements publics." Report 36, Centre d'Analyse Strategique, Paris.
Gollier, C. (2012). Pricing the planet's future: the economics of discounting in an uncertain world. Princeton: Princeton
University Press. pp. 177-179.