A vector autoregressive model of the Saudi Arabian economy

This paper examines the institutions and then estimates a VAR model of the Saudi economy. The results indicate that the Saudi economy was influenced by world inflation and by Saudi oil policy. These results suggest that a small open economy with fixed exchange rates dependent on a single export commodity will have difficulty conducting independent monetary policy. Monetary policy may be endogenous to export-generated revenues. These results need not generalize to other small open economics. However, they suggest that small economies likely have different causal flows than large economies, and analysis of their institutional details is a preprequisite for understanding internal economic relationships.