The Role of Money in Saudi Arabia's Economic Expansion

An Empirical Investigation of Monetary Dynamics

Authors

  • Ibraheem Alaskar Department of Insurance and Banking, College of Business Studies, The Public Authority for Applied Education and Training (PAAET)
  • Musaed S. AlAli Department of Insurance and Banking, College of Business Studies, The Public Authority for Applied Education and Training (PAAET)
  • Khaled Alsaifi Department of Insurance and Banking, College of Business Studies, The Public Authority for Applied Education and Training (PAAET)

DOI:

https://doi.org/10.20525/ijfbs.v13i4.3761

Keywords:

Money Supply, Cointegration, Granger Causality, Monetary Aggregates, Economic Growth, Saudi Arabia, Monetary Policy

Abstract

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.

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Published

2024-10-16

How to Cite

Alaskar, I., AlAli, M. S., & Alsaifi, K. (2024). The Role of Money in Saudi Arabia’s Economic Expansion: An Empirical Investigation of Monetary Dynamics . International Journal of Finance & Banking Studies (2147-4486), 13(4), 11–18. https://doi.org/10.20525/ijfbs.v13i4.3761