Current Account Dynamics Based on the Present Value Model: Evidence from Saudi Arabia
Alshgri, Khalid h. Alqudair with Reem A. . 2012
The purpose of the paper is to investigate Saudi Arabia’s current account dynamic based on consumption theory using present value model. In this model, consumers are assumed to inter- temporally smooth their consumption and the current account was used as a buffer by borrowing and lending in the international capital markets in the face of shocks to output, investment and government expenditure. If this consumption smoothing theory holds, then the optimal current account and the actual current account will be equal. Using vector autoregressive (VAR) model of current account, net output, world real interest rate, real effective exchange rate and term of trade for the period of 1972 to 2006, the paper finds no evidence that the Saudi current account follows the consumption smoothing theory. Thus, further studies are recommended to explore the determinants of the Saudi current account behavior.
The study examines the long-run equilibrium relationship between energy consumption and economic growth in the Kingdom of Saudi Arabia (1970–2008), using a cointegration technique and the…
The purpose of the paper is to investigate Saudi Arabia’s current account dynamic based on consumption theory using present value model.