Essays on macroeconomic fluctuations, oil prices, and world inflation: The case of Saudi Arabia

This dissertation examine the sources of real exchange rate movements, sources of macroeconomics fluctuations and the role of Saudi Arabia in world oil price and inflation.; The objective of chapter two is to investigate the sources of real exchange rate movements in Saudi Arabia by decomposing real exchange rate movements into those attributable to real and nominal shocks. We constructed a 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. A good candidate for real shocks is the frequent fluctuations in oil prices which cause changes in terms of trade. In order to stabilize the exchange rate, Saudi Arabia should focus on stabilizing world oil prices at reasonable levels.; The objective of chapter three is to investigate the sources of business cycle fluctuations in Saudi Arabia by examining the effects of oil price, supply and demand, trade balance, and monetary shocks on the Saudi Arabia output, real exchange rate, real money balances and price movements. We constructed a structural VAR model to examine the sources of business cycle movements. We find that trade balance shocks seem to have moderate impact in the movements of real oil price in the short-run. Oil price shocks have little role in explaining the variation of the output. Aggregate supply shocks explain almost all the forecast error variance of output movements at all time horizons. Although oil price shocks show small effects in explaining real exchange rate movements in the short-run, the magnitude of the effects of oil price shocks becomes important in the long-run. Trade balance shocks are very important in explaining real exchange rate movements at all time horizons.; The objective of chapter four is to investigate the effects of Saudi production, oil price, and world monetary shocks on Saudi output, world nominal oil price and world inflation. We constructed a structural VAR model and assuming long-run neutrality of the world monetary shocks we find that Saudi production shocks have a very important role in explaining the variation of world nominal oil price. Moreover, oil price shocks have little role in the Saudi output movements. Saudi production shocks seem to have little effects on world inflation. Oil price shocks have a sizable effect on world inflation. However, these results seem to be sensitive to the VAR specification.