ASYMMETRIC IMPACTS AMONG OIL PRICE SHOCKS, GOVERNMENT EXPENDITURES, MONETARY RESERVES, EXCHANGE RATE IN KSA: EVIDENCE FROM A NON-LINEAR ARDL APPROACH
Journal of Economics and Trade,
Page 33-46
DOI:
10.56557/jet/2022/v7i17870
Abstract
This study examines the influence of oil price shocks on government expenditures; monetary reserves; exchange rate in KSA 1970-2020. For this purpose, we employed a non-linear autoregressive distributed lag NARDL approach to disentangle the effects of positive, and negative shocks; identify the existence of structural factors and we employed the traditional unit root tests and the unit root tests with structural breaks to verify stationery. Through the application of the NARDL model, we confirm the presence of co-integration between oil price shocks; government expenditures, monetary reserves, and exchange rate in KSA. The results show that the asymmetry hypothesis is valid for the long run and short run which suggests that the oil price shocks are sensitive to the variation in the macroeconomic indicators. This means that these macroeconomic indicators play an important role in oil price shocks. And how to absorb these shocks in the long run. The findings of this study suggest that in the short run, the oil price is negatively influenced by the Monetary Reserves, and positively by the exchange rate; government expenditures. Results support the nonlinear proposition wherein positive shocks are compared to negative shocks. Complementary macroeconomic policy guidelines; the policy of rationalization of spending and the stability of the exchange rate in KSA can help to reinstate transform their economies away from oil dependence. And this would facilitate in dealing with the shocks that may face oil prices in the future. Accordingly; policy makers must pay attention to the Economic; geopolitical and epidemiological developments in light of unexpected variables.
Keywords:
- Oil price shocks
- monetary reserves
- effective exchange rate
- Non-linear the Autoregressive Distributed Lag Model (NARDL)
- government expenditures
How to Cite
FADOL, H. T. A. (2022). ASYMMETRIC IMPACTS AMONG OIL PRICE SHOCKS, GOVERNMENT EXPENDITURES, MONETARY RESERVES, EXCHANGE RATE IN KSA: EVIDENCE FROM A NON-LINEAR ARDL APPROACH. Journal of Economics and Trade, 7(1), 33-46. https://doi.org/10.56557/jet/2022/v7i17870
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Shin Y, Yu B, Greenwood-Nimmo M. Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework. Festschrift in Honor of Peter Schmidt. New York: Springer Science+Business Media; 2014a.
Schorderet Y. Asymmetric cointegration. Geneva, Switzerland: University of Geneva; 2003.
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Kaushik N, Raja N, Upadhyaya K. Oil price and real exchange rate: the case of India. Int Bus Econ Res J. 2014;13(4):809-14.
Phillips PCB, Perron P. Testing for a unit root in time series regression. Biometrika. 1988;75(2):335-46.
Dickey DA, Fuller WA. Distribution of the estimators for autoregressive time series with a unit root. J Am Stat Assoc. 1979;74(366a): 427-31.
Phillips PCB, Perron P. Testing for a unit root in time series regression. Biometrika. 1988;75(2):335-46.
Banerjee A, Dolado J, Mestre R. Error-correction mechanism tests for cointegration in a single-equation framework. J Time S Anal. 1998;19(3):267-83.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analyses of level relationships. J Appl Econ. 2001;16(3): 289-326.
Brown RL, Durbin J, Evans JM. Techniques for testing the constancy of regression relationships over time. J R Stat Soc B (Methodol). 1975;37(2):149-63.
Aizenman J, Edwards S, Riera-Crichton D. Adjustment patterns to commodity terms of trade shocks: the role of exchange rate and international reserves policies, IMF Working Paper 17692. Journal of International Money and Finance. 2012;31(8):1990-2016.
Al-Hakami AO. Analyzing the causal relationship between government expenditure and revenues in Saudi Arabia, employing co-integration and Granger causality models. Public Adminstration. 2002;42:475-93.
Bodenstein M, Erceg CJ, Guerrieri L. Oil shocks and external adjustment. J Int Econ. 2011;83(2):168-84.
Kireyev A. Key issues concerning non-oil sector: Saudi Arabia recent economic development issue.. Washington, DC: International Monetary Fund. 1998; 48
Habib MM, Bützer S, Stracca L. Global Exchange rate configurations: do oil shocks matter?. IMF Econ Rev. 2016;64(3):443-70 (28 pages).
Available:https://www.jstor.org/stable/45212115
Nimmo K, Shin Y, Treeck V. Nonlinear autoregressive distributed lag (NARDL) model, asymmetric interest rate pass-through, great moderation; 2013. Available from: http://ssrn.com/abstract=1894621.
Nimmo K, Shin Y, Treeck V. The great moderation and the decoupling of monetary policy from long-term rates in the U.S. and Germany, the macroeconomic policy institute (IMK) WP, 2010.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of level relationships. J Appl Econ. 2001;16(3):289-326.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of level relationships. J Appl Econ. 2001;16(3):289-326.
Available:https://doi.org/10.1002/jae.616
Nusair SA. The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach. Int Rev Appl Econ. 2017;31(1):1-27.
DOI: 10.1080/02692171.2016.1214109.
Mseddi S, Benlagha N. Linkage between energy consumption and economic growth: evidence from Saudi Arabia. The Empirical Econ Lett. 2017;16(10):1993-101.
Hemrit W, Benlagha N. The impact of government spending on non-oil-GDP in Saudi Arabia (multiplier analysis). Int J Econ Bus Research. 2018;15(3):350-72.
DOI: 10.1504/IJEBR.2018.091050.
Adedokun A. The effects of oil shocks on government expenditures and government revenues nexus in Nigeria (with erogeneity restrictions). Future Bus J. 2018; 4(2):219-32.
Abdel-Latif H, Osman RA, Ahmed HA. Asymmetric impacts of oil price shocks on government expenditures: evidence from Saudi Arabia. Cogent Econ Fin. 2018;6(1).
Available:https://www.tandfonline.com/doi/full/10.1080/23322039.2018.1512835.
Pazouki A, Pazouki MR. Analysing the effects of oil price shocks on government expenditure in the Iranian economy. Int J Energy Stat. 2014;02(2):103-23.
DOI: 10.1142/S2335680414500082.
Dizaji SF. The effects of oil shocks on government expenditures and government revenues nexus (with an application to Iran’s sanctions; June. Econ Modell. 2014;40: 299-313.
DOI: 10.1016/j.econmod.2014.04.012.
Pazouki A, Pazouki MR. Analysing the effects of oil price shocks on government expenditure in the Iranian economy. Int J Energy Stat. 2014;02(2):103-23.
DOI: 10.1142/S2335680414500082.
Habib MM, Kalamova MM. Are there oil currencies? The real exchange rate of oil exporting countries [working paper]. SSRN Journal. (PDF), Does Oil Price. 2007;2.
Zadmehr HA, Ansari MS, Moradi M. Does oil price matter in explaining exchange rate of oil exporting countries?. management economics and humanities london. J Appl Econ, 16. 2017;3 (2001):289-326.
Ji Q, Shahzad SJH, Bouri E, Suleman MT. Dynamic structural impacts of oil shocks on exchange rates: lessons to learn. J Econ Struct. 2020;9(1):Article number: 20.
Suliman THM, Abid M. First published July 6; 2020. The impacts of oil price on exchange rates: evidence from Saudi Arabia, SAGE Journals, First Published [cited Jul 6, 2020].
Available: https://doi.org/10.1177/0144598720930424.
Andrew Osaretin Izekor & Omoruyi Aigbovo. J Fin. Causality Effect between Crude Oil Price Shocks and the Nigeria Foreign Reserves (1993–2017): An Empirical Measure for Economic Activities, Amity. 2018;3(2):58-65.
Available:https://www.researchgate.net/publication/319454790
Shahbaz M, Hoang THV, Mahalik MK, Roubaud D. Energy consumption; financial development and economic growth in India: new evidence from a nonlinear and asymmetric analysis. Energy Econ. 2017a;63:199-212.
Ahmad N, Du L. Effects of energy production and CO2 emissions on economic growth in Iran: ARDL approach. Energy. 2017;123:521-37.
Cashin P, Céspedes LF, Sahay R. Commodity currencies and the real exchange rate. J Dev Econ. 2004;75(1):239-68.
Baz K, Xu D, Ampofo GMK, Ali I, Khan I, Cheng J et al. Energy consumption and economic growth nexus: new evidence from Pakistan using asymmetric analysis. Energy. 2019;189:116254.
Luqman M, Ahmad N, Bakhsh K. Nuclear energy, renewable energy and economic growth in Pakistan: evidence from non-linear autoregressive distributed lag model. Renew Energy. 2019;139:1299-309.
Nusair SA. The effects of oil price shocks on the economies of the Gulf Co-Operation Council countries: nonlinear analysis. Energy Policy. 2016;91:256-67.
Shin Y, Yu B, Greenwood-Nimmo. Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework [working paper]; 2009. M.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of level relationships. J Appl Econ. 2001;16(3):289-326.
Schorderet Y. Asymmetric cointegration. Universite de Geneve, Faculte des sciences eqconomiques et sociales. Department d’econometrie [working paper]; 2003.
Shin Y, Yu B, Greenwood-Nimmo. Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework [working paper]; 2009.
Shin Y, Yu B, Greenwood-Nimmo M. Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In: Sickles RC, Horrace WC, editors. Festschrift in Honor of Peter Schmidt. Berlin, Germany: Springer; 2014;281-314.
Shin Y, Yu B, Greenwood-Nimmo M. Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework. Festschrift in Honor of Peter Schmidt. New York: Springer Science+Business Media; 2014a.
Schorderet Y. Asymmetric cointegration. Geneva, Switzerland: University of Geneva; 2003.
Ng S, Perron P. Lag length selection and the construction of unit root tests with good size and power. Econometrica. 2001;69(6):1519-54.
DOI: 10.1111/1468-0262.00256.
Kaushik N, Raja N, Upadhyaya K. Oil price and real exchange rate: the case of India. Int Bus Econ Res J. 2014;13(4):809-14.
Phillips PCB, Perron P. Testing for a unit root in time series regression. Biometrika. 1988;75(2):335-46.
Dickey DA, Fuller WA. Distribution of the estimators for autoregressive time series with a unit root. J Am Stat Assoc. 1979;74(366a): 427-31.
Phillips PCB, Perron P. Testing for a unit root in time series regression. Biometrika. 1988;75(2):335-46.
Banerjee A, Dolado J, Mestre R. Error-correction mechanism tests for cointegration in a single-equation framework. J Time S Anal. 1998;19(3):267-83.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analyses of level relationships. J Appl Econ. 2001;16(3): 289-326.
Brown RL, Durbin J, Evans JM. Techniques for testing the constancy of regression relationships over time. J R Stat Soc B (Methodol). 1975;37(2):149-63.
Aizenman J, Edwards S, Riera-Crichton D. Adjustment patterns to commodity terms of trade shocks: the role of exchange rate and international reserves policies, IMF Working Paper 17692. Journal of International Money and Finance. 2012;31(8):1990-2016.
Al-Hakami AO. Analyzing the causal relationship between government expenditure and revenues in Saudi Arabia, employing co-integration and Granger causality models. Public Adminstration. 2002;42:475-93.
Bodenstein M, Erceg CJ, Guerrieri L. Oil shocks and external adjustment. J Int Econ. 2011;83(2):168-84.
Kireyev A. Key issues concerning non-oil sector: Saudi Arabia recent economic development issue.. Washington, DC: International Monetary Fund. 1998; 48
Habib MM, Bützer S, Stracca L. Global Exchange rate configurations: do oil shocks matter?. IMF Econ Rev. 2016;64(3):443-70 (28 pages).
Available:https://www.jstor.org/stable/45212115
Nimmo K, Shin Y, Treeck V. Nonlinear autoregressive distributed lag (NARDL) model, asymmetric interest rate pass-through, great moderation; 2013. Available from: http://ssrn.com/abstract=1894621.
Nimmo K, Shin Y, Treeck V. The great moderation and the decoupling of monetary policy from long-term rates in the U.S. and Germany, the macroeconomic policy institute (IMK) WP, 2010.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of level relationships. J Appl Econ. 2001;16(3):289-326.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of level relationships. J Appl Econ. 2001;16(3):289-326.
Available:https://doi.org/10.1002/jae.616
Nusair SA. The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach. Int Rev Appl Econ. 2017;31(1):1-27.
DOI: 10.1080/02692171.2016.1214109.
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