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Sources of real exchange rate movements in Saudi Arabia

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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)

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Authors and Affiliations

  1. Southern Illinois University Urbana Champaign, Urbana-Champaign, USA

    Eisa A. Aleisa (is an associate professor of economics)

  2. Southern Illinois University at Urbana-Champaign, Urbana-Champaign, USA

    Sel Dibooĝlu (a visiting scholar)

  3. University of Illinois at Urbana-Champaign, USA

    Sel Dibooĝlu (a visiting scholar)

Authors
  1. Eisa A. Aleisa
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  2. Sel Dibooĝlu
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Aleisa, E.A., Dibooĝlu, S. Sources of real exchange rate movements in Saudi Arabia. J Econ Finan 26, 101–110 (2002). https://doi.org/10.1007/BF02744455

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  • DOI: https://doi.org/10.1007/BF02744455

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