Abstract
In a very broad sense, KGEMM is a demand-side macroeconometric model augmented with several supply-side representations. The fifth version of KGEMM, presented in this book, has more supply-side augmentation compared to earlier versions. Welfe (2011) among others discuss that for macroeconometric models to be used for policy analysis and projections they should represent both the demand- and supply-side relationships.
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In a very broad sense, KGEMM is a demand-side macroeconometric model augmented with several supply-side representations. The fifth version of KGEMM, presented in this book, has more supply-side augmentation compared to earlier versions. Welfe (2011), among others discuss that for macroeconometric models to be used for policy analysis and projections they should represent both the demand- and supply-side relationships.
The demand-side relationships are mainly represented using Keynesian and new-Keynesian schools of thought. This is true for many relationships modeled in the blocks of the model that we discuss in Chaps. 6 and 7. Therefore, we do not discuss equation-by-equation application of the theory here.
Supply-side representations are mainly in the real and price blocks of the model using Neoclassical theory. For example, modeling the supply side of the economic activities using the production function framework from the Neoclassical theory. Supply- and demand-side determinants have also been considered in modeling the price indexes for the consumer basket sub-groups, GDP deflators for sectoral economic activities, and non-oil exports. In general, the model brings together demand-side factors, such as consumption, investment, exports and imports, and supply-side factors, such as potential output, capital stock, employment, and prices.
As mentioned earlier, one of the characteristics of KGEMM is that it takes into consideration stylized facts of the Saudi Arabian economy. The stylized facts originate from a number of characteristics of Saudi Arabia, some of which are listed below:
Saudi Arabia is an oil-based economy. In 1970–2019, oil constituted on average 59% of the total economy, 79% of budget revenues, and 93% of total exports (SAMA 2020).
Saudi Arabia, like other Gulf Cooperation Council countries, has a substantial foreign labor force. Foreign nationals, particularly from East and Southeast Asian countries, account for 37% of its total population and more than 81% of the country’s private sector employment (e.g., see Hasanov et al. 2021).
Historically, policymakers did not consider taxes as the main sources of fiscal revenue and, thus, they did not use taxes as key fiscal policy variables in economic adjustments (e.g., see Looney 1988).
The country is the custodian of the two holiest cities of the Islamic world, Makkah Al-Mukarramah and Al-Madīnah Al-Munawwarah. As such, there is great potential for religious tourism to be one of the main sources of the country’s fiscal revenues (SV2030).
References
Hasanov, Fakhri J., Jeyhun I. Mikayilov, Muhammad Javid, Moayad Al-Rasasi, Frederick Joutz, and Mohammed B. Alabdullah. 2021. Sectoral employment analysis for Saudi Arabia. Applied Economics 53 (45): 5267–5280.
Looney, Robert E. 1988. Saudi Arabia’s fiscal options: 1986–1992. Socio-Economic Planning Sciences 22 (3): 109–123.
SAMA. 2020. Saudi Arabian Central Bank. Yearly Statistics, 2020 release.
Welfe, Wladyslaw. 2011. Long-term macroeconometric models: The case of Poland. Economic Modelling 28 (1–2): 741–753.
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Hasanov, F.J., Joutz, F.L., Mikayilov, J.I., Javid, M. (2023). Theoretical Framework and Stylized Facts. In: A Macroeconometric Model for Saudi Arabia. SpringerBriefs in Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-12275-0_3
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DOI: https://doi.org/10.1007/978-3-031-12275-0_3
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