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An Empirical Investigation of Oil-Macro-financial Linkages in Saudi Arabia

  • Ken Miyajima EMAIL logo

Abstract

Against the backdrop of low oil prices, oil-macro-financial linkages in Saudi Arabia are analyzed by applying panel econometric frameworks (multivariate and vector autoregression) to macro- and micro-level data for 9 banks spanning 1999–2014. Lower growth of oil prices and nonoil private sector output leads dampen credit and deposit growth and lift nonperforming loan ratios. Positive feedback loops within bank balance sheets in turn dampen economic activity. U.S. interest rates are not found to be a key determinant. The banking system remains strong at present, but policy makers should monitor its health with the important macro-financial feedback loops in mind.

JEL Classification: C63; E44; G21; G28

Appendix

Figure 7: Oil-macro-financial feedback effects, pvar 2.Note: Oil is real oil price growth, y is real nonoil private sector GDP growth, crg is real credit growth, dpg is real deposit growth, nplr is NPL ratio.
Figure 7:

Oil-macro-financial feedback effects, pvar 2.

Note: Oil is real oil price growth, y is real nonoil private sector GDP growth, crg is real credit growth, dpg is real deposit growth, nplr is NPL ratio.

Figure 8: Oil-macro-financial feedback effects, pvar 3.Note: oilg is real oil price growth, yg is real nonoil private sector GDP growth, crg is real credit growth, nplr is NPL ratio, dpg is real deposit growth.
Figure 8:

Oil-macro-financial feedback effects, pvar 3.

Note: oilg is real oil price growth, yg is real nonoil private sector GDP growth, crg is real credit growth, nplr is NPL ratio, dpg is real deposit growth.

Figure 9: Oil-macro-financial feedback effects, pvar 4.Note: olig is real oil price growth, yg is real nonoil private sector GDP growth, nplr is NPL ratio, crg real credit growth, dpg is real deposit growth.
Figure 9:

Oil-macro-financial feedback effects, pvar 4.

Note: olig is real oil price growth, yg is real nonoil private sector GDP growth, nplr is NPL ratio, crg real credit growth, dpg is real deposit growth.

Figure 10: Oil-macro-financial feedback effects, pvar 5.Note: olig is real oil price growth, nplr is NPL ratio, dpg is real deposit growth, crg is real credit growth, eqg is real equity price growth.
Figure 10:

Oil-macro-financial feedback effects, pvar 5.

Note: olig is real oil price growth, nplr is NPL ratio, dpg is real deposit growth, crg is real credit growth, eqg is real equity price growth.

Acknowledgment

The views expressed in the article are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. Earlier versions of this paper benefitted from extensive discussion with the Executive Directors and Saudi Arabian Monetary Agency staff. The author is grateful to Tim Callen, Javier Hamann, Phakawa Jeasakul, Padamja Khandelwal, Ananthakrishnan Prasad, seminar participants at the IMF and the Saudi Arabian Monetary Agency. The author would like to also think the referees and the editor of the journal for useful comments. Any errors are the author’s responsibility.

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Published Online: 2017-8-12

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