ASYMMETRIC IMPACTS AMONG OIL PRICE SHOCKS, GOVERNMENT EXPENDITURES, MONETARY RESERVES, EXCHANGE RATE IN KSA: EVIDENCE FROM A NON-LINEAR ARDL APPROACH

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.