External Linkages and Policy Constraints in Saudi Arabia
IMF Working Papers, March 5, 2013
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Bibliographic details
- Authors: Niklas J Westelius
- Published: March 5, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475570274.001
Overview and central argument
- Author: Niklas J Westelius
- Publication date: March 5, 2013
- Core thesis: Two major ongoing developments have altered and will continue to affect policy trade-offs in Saudi Arabia:
- Growing oil needs of emerging market economies (EMEs), specifically developing Asia, which have strengthened economic links between the Far East and Saudi Arabia.
- Financial sector development in Saudi Arabia, which has gradually strengthened the monetary transmission mechanism.
- Policy implication: Increased importance of developing Asia’s growth cycle for the Saudi economy, and greater influence of U.S. monetary policy on the non-oil economy through the peg to the U.S dollar.
- Resulting tension: Divergence between the growth cycles in developing Asia and the United States can increasingly generate tension between policy objectives in Saudi Arabia.
Key findings and implications
- External demand linkages:
- Stronger dependence of Saudi Arabia’s oil sector on the growth cycle of developing Asia.
- Growing oil needs of EMEs shift the center of external demand influence toward the Far East.
- Financial and monetary linkages:
- Domestic financial sector development has strengthened monetary transmission in Saudi Arabia.
- The peg to the U.S dollar implies greater pass-through of U.S. monetary policy to the non-oil economy.
- Policy trade-offs:
- When developing Asia and the United States have divergent growth cycles, Saudi policymakers may face conflicting objectives between stabilizing the non-oil economy and responding to external oil demand conditions.
Subjects and keywords (as listed)
- Subjects: Business cycles, Commodities, Credit, Economic growth, Money, Oil, Oil prices, Oil, gas and mining taxes, Prices, Taxes
- Keywords: Asia and Pacific, banking system, Business cycles, Credit, gas and mining taxes, Global, interest rate, Oil, oil export, oil GDP, oil price, oil price shock, Oil prices, oil revenue, Saudi Arabia, WP