Fixed Exchange Rate or Flexible Exchange Rate for Saudi Arabia: optimal solution of CGE model

Abstract

When analyzing the impact of changes in oil and petroleum prices on Saudi Arabia’s economy the results indicate that adjustments in foreign savings, supporting an unchanged real exchange rate in the context of changes in oil world prices, quite effectively can insulate the domestic economy from international price fluctuations. If the economy is forced to adjust to the fall in world prices without offsetting changes in foreign savings, the resulting loss of export earnings and associated depreciation have major impacts on aggregate absorption, and the structure of production.