The Role of Money in Saudi Arabia's Economic Expansion
An Empirical Investigation of Monetary Dynamics
DOI:
https://doi.org/10.20525/ijfbs.v13i4.3761Keywords:
Money Supply, Cointegration, Granger Causality, Monetary Aggregates, Economic Growth, Saudi Arabia, Monetary PolicyAbstract
This study investigates the long-term and short-term relationships between different monetary aggregates (M0, M1, M2, and M3) and GDP in Saudi Arabia using the Engle-Granger cointegration test and the Granger causality test. The results reveal that M2 has the most stable long-term relationship with GDP, making it the most reliable aggregate for policy formulation. M1 also shows a strong relationship, while M3’s connection is comparatively weaker. The causality analysis indicates bidirectional relationships between GDP and M1, M2, and M3, suggesting that changes in these aggregates can both influence and be influenced by economic activity. In contrast, M0 shows no significant long-term relationship and only responds to changes in GDP, indicating its limited policy relevance. These findings highlight the importance of using broader aggregates like M2 for effective policy targeting in Saudi Arabia’s evolving economic landscape. The study provides crucial insights for policymakers in selecting appropriate monetary aggregates for long-term planning and short-term economic stabilization.
Downloads
References
Abbas, K. (1991). Causality Test between Money and Income: A Case Study of Selected Developing Asian Countries (1960-1988). The Pakistan Development Review, 30(4), 919-929. www.jstor.org/stable/41259510
Alaskar, I. (2020). Interaction of Real and Financial Variables in an Oil-Based Economy: The Case of Kuwait. RMIT University.
Arango, S., & Nadiri, M. I. (1981). Demand for Money in Open Economies. Journal of Monetary Economics, 7(1), 69-83. https://doi.org/10.1016/0304-3932(81)90052-0
Barnett, W. A., Chauvet, M., & Leiva-Leon, D. (2016). Real-time Nowcasting of Nominal GDP with Structural Breaks. Journal of Econometrics, 191(2), 312-324. https://doi.org/10.1016/j.jeconom.2015.12.004
Cagan, P. (1965). Determinants and Effects of Changes in the Stock of Money 1875–1960. National Bureau of Economic Research.
Chen, C. H. (1989). Monetary Aggregates and Macroeconomic Performance in Mainland China. Journal of Comparative Economics, 13(2), 314-324. https://doi.org/10.1016/0147-5967(89)90007-3
Christiano, L. J., & Ljungqvist, L. (1988). Money Does Granger-Cause Output in the Bivariate Money-Output Relation. Journal of Monetary Economics, 22(2), 217-235. https://doi.org/10.1016/0304-3932(88)90020-7
Davis, K., & Lewis, M. (1977, October 1977). Money and Income: Evidence from Simple Models. The Australian Monetary System in the 1970s, Melbourne.
Engle, R. F., & Granger, C. W. (1987). Co-integration and Error Correction: Representation, Estimation, And Testing. Econometrica: Journal of the Econometric Society, 55(2), 251-276. https://doi.org/10.2307/1913236
Friedman, B. M., & Kuttner, K. N. (1992). Money, Income, Prices, and Interest Rates. The American Economic Review, 472-492.
Friedman, M., & Meiselman, D. (1963). The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897-1958. Department of Economics, University of Chicago.
Friedman, M., & Schwartz, A. J. (1963a). A Monetary History of the United States, 1867-1960. Princeton University Press.
Friedman, M., & Schwartz, A. J. (1963b). Money and Business Cycles. The Review of Economics and Statistics, 45(1), 32-64. https://doi.org/https://doi.org/10.2307/1927148
Granger, C. W. (1969). Investigating Causal Relations by Econometric Models and Cross-Spectral Methods. Econometrica: Journal of the Econometric Society, 37(3), 424-438. https://doi.org/10.2307/1912791
Gujarati, D. N., Porter, D. C., & Gunasekar, S. (2017). Basic Econometrics. McGraw-Hill.
Hayo, B. (1999). Money-output Granger Causality Revisited: an Empirical Analysis of EU Countries. Applied Economics, 31(11), 1489-1501. https://doi.org/10.1080/000368499323355
Husain, F., & Abbas, K. (2010). Money, Income, Prices, and Causality in Pakistan: A Trivariate Analysis. Pakistan Institute of Development Economics.
Jalles, J. T. (2019). Monetary Aggregates and Macroeconomic Performance: The Portuguese Escudo, 1911–1999. International Economic Journal, 33(4), 719-740. https://doi.org/10.1080/10168737.2019.1609064
McCallum, B. T., & Nelson, E. (1999). An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis. Journal of Money, Credit and Banking, 31(3), 296-316. https://doi.org/https://doi.org/10.2307/2601113
Neely, C. J. (2023). The Rise and Fall of M2. Economic Synopses, (11). https://doi.org/10.20955/es.2023.11
Nelson, C. R., & Plosser, C. I. (1982). Trends and Random Walks in Macroeconomic Time Series: Some Evidence and Implications. Journal of Monetary Economics, 10(2), 139-162. https://doi.org/10.1016/0304-3932(82)90012-5
Portes, R., & Santorum, A. (1987). Money and the Consumption Goods Market in China. Journal of Comparative Economics, 11(3), 354-371. https://doi.org/10.1016/0147-5967(87)90060-6
Sheppard, W. R. (1973). Money and Economic Activity in Australia. Australia and New Zealand Association for the Advancement of Science, Perth.
Sims, C. A. (1972). Money, Income, and Causality. The American Economic Review, 62(4), 540-552.
Stock, J. H., & Watson, M. W. (1989). Interpreting the Evidence on Money-Income Causality. Journal of Econometrics, 40(1), 161-181. https://doi.org/10.1016/0304-4076(89)90035-3
Williams, D., Goodhart, C. A. E., & Gowland, D. H. (1976). Money, Income, and Causality: The UK Experience. The American Economic Review, 66(3), 417-423. https://www.jstor.org/stable/1828178.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Ibraheem Alaskar, Musaed S. AlAli, Khaled Alsaifi
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors contributing to IJFBS agree to publish their articles under the Creative Commons Attribution- 4.0 license, allowing third parties to share their work (copy, distribute, transmit) and to adapt it, under the condition that the authors are given credit, that the work is not used for commercial purposes, and that in the event of reuse or distribution, the terms of this license are made clear. Authors retain copyright of their work, with first publication rights granted to IJFBS. However, authors are required to transfer copyrights associated with commercial use to the Publisher. The authors agree to the terms of this Copyright Notice, which will apply to this submission if and when it is published by this journal
Submission of an article implies that the work described has not been published previously( except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, it will not be published elsewhere in the same form, in English or in any other languages, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.