Oil Price Shocks to Foreign Assets and Liabilities in Saudi Arabia under Pegged Exchange Rate

• Published in: Mathematics (Basel) Vol. 10; no. 24; p. 4752
• Main Authors: Samargandi, Nahla, Sohag, Kazi
• Format: Journal Article
• Language: English
• Published: Basel MDPI AG 01-12-2022
• Subjects: Agricultural commodities; Agricultural production; Analysis; Assets (Accounting); Biodiesel fuels; Biofuels; Cost control; COVID-19 pandemic; Crude oil; Dynamic response; Economic growth; Expenditures; Exports; foreign assets; Foreign exchange rates; Foreign investment; foreign liability; GDP; Government spending; Gross Domestic Product; Hydrocarbons; Influence; International marketing; International trade; Liabilities (Accounting); Liability; Macroeconomics; Mathematical models; Petroleum; Prices; Prices and rates; Pricing; Saudi Arabia; Supply and demand; Supply shocks; Saudi Arabia; Brazil; China; Russia
• ISSN: 2227-7390; 2227-7390
• DOI: 10.3390/math10244752

The Saudi economy ought to maintain a significant amount of foreign exchange reserves due to the pegged exchange rate regime. As a hydrocarbon economy, we measure the dynamic response of external assets and liabilities of banks to the international oil price in Saudi Arabia. In the presence of extreme observations, we apply sophisticated frameworks, including cross-quantilograms, quantile-on-quantile and TVP-VAR approaches, to analyze weekly time-series data from 1993 to 2021. Our results from the cross-quantilogram and quantile-on-quantile frameworks demonstrate that foreign assets and liabilities responded asymmetrically to the volatilities of international oil prices under the bullish and bearish states of the market over different memories. The TVP-VAR results indicate that, during the COVID-19 pandemic, the Saudi economy encountered negative net foreign assets, which occurred mainly as a significant plague of international oil prices. Our findings are robust under different estimators.