The optimal currency-peg for an oil exporting country: The case of Saudi Arabia

Miscellaneous · Mon Jan 01 00:00:00 EST 1990

OSTI ID:6248009

Almasbahi, M S

In a world of generalized floating exchange rates, it is not enough to solve the problem of exchange rate policy by determining whether to peg or float the currency under consideration. It is also necessary to choose to what major currency to peg. The main purpose of this study is to investigate and determine empirically the optimum currency peg for the Saudi riyal. To accomplish this goal, a simple conventional trade model, that includes variables found in many other studies of import and export demand, was used. In addition, an exchange rate term was added as a separate independent variable in the import and export demand equations in order to assess the effect of exchange rate on the trade flows. The criteria for the optimal currency peg in this study were based on two factors. First, the error statistics for projected imports and exports using alternative exchange rate regimes. Second, variances of projected imports, exports and trade balance using alternative exchange rate regimes. The exchange rate has a significant impact on the Saudia Arabian trade flows which implies that changes in the riyals value affect the Saudi trade deficit. Moreover, the exchange rate has a more powerful effect on its aggregate imports than on the world demand for its exports. There is also a strong support for the hypothesis that the exchange rate affects the value of the Saudi bilateral trade with its five major trade partners. On the aggregate level, the SDR peg seems to be the best currency peg for the Saudi riyal since it provides the best prediction errors and the lowest variance for the trade balance. Finally, on the disaggregate level, the US dollar provides the best performance and yields the best results among all the six currency pegs considered in this study.

• Research Organization: Oklahoma State Univ., Stillwater, OK (United States)
• OSTI ID: 6248009
• Resource Relation: Other Information: Thesis (Ph.D)
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
29 ENERGY PLANNING
POLICY AND ECONOMY
PETROLEUM
TRADE
SAUDI ARABIA
FOREIGN EXCHANGE RATE
COMPARATIVE EVALUATIONS
COST ESTIMATION
ECONOMIC IMPACT
ECONOMIC POLICY
ENERGY DEMAND
EQUATIONS
EXPORTS
IMPORTS
MATHEMATICAL MODELS
NET TRADE
ASIA
DEMAND
DEVELOPING COUNTRIES
ENERGY SOURCES
EVALUATION
FOSSIL FUELS
FUELS
GOVERNMENT POLICIES
MIDDLE EAST
020700* - Petroleum- Economics
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294002 - Energy Planning & Policy- Petroleum
290200 - Energy Planning & Policy- Economics & Sociology