Conference Paper
Fiscal versus Monetary Dominance: Evidence from Saudi Arabia
No.
ERF30_158
Publisher
ERF
Date
March, 2024
In this paper, we address the issue of fiscal dominance in the context of oil-dependent countries. The analysis is based on the approach proposed by Costa and Olivo (2008), which proposes that there is a relationship between the fiscal balance and the monetary base by using the vector autoregression (VAR) model and analyzing the impulse response functions, the variance decomposition and the Granger causality test. Another extension of this paper is to examine time-varying interactions between monetary and fiscal policies using the Markov switching vector autoregression (MS-VAR) model. In conclusion, relevant evidence supports the validity of the oil dominance/fiscal dominance hypothesis in Saudi Arabia. Moreover, policies' behavior varies across regimes, with the “fiscal dominance” regime being more likely to hold during periods of high oil prices. Finally, the fiscal dominance problem has the macroeconomic effect of making monetary policy more accommodating.
Authors
Moez Ben Tahar
Assistant Professor Faculty of Economics and Management...
Research Fellows
Sarra Ben Slimane
Assistant Professor, Faculty of Business Administration. University...
Authors
Raja M. Almarzoqi
GCC Chief Negotiator, the Chief Economic Advisor...