Study of the impact of crude oil prices on economic output and inflation in Saudi Arabia

Abstract

Our work analyses the effects of oil price changes on economic output and inflation in Saudi Arabia by employing both linear and nonlinear autoregressive distributed lag models over the period 1980–2021. The results report that crude oil price changes have only asymmetric impacts on economic output in Saudi Arabia. The increases in crude oil price result in higher output growth in the long run whereas their decreases do not have impact on output growth in both the short and long run. Crude oil price variations (increases or decreases) have symmetric impacts on inflation in both the short and long run in Saudi Arabia. The rises in crude oil prices induce higher inflation whereas their decreases lead to lower inflation in both the short and long run. Appreciation of Saudi currency can lead to higher inflation only in the short run. Thus, Saudi authorities should accompany the changes in oil prices by some policies to combat inflationary pressures and their consequences.