INTERTEMPORAL APPROACH TO THE CURRENT ACCOUNT: EVIDENCE FROM SAUDI ARABIA, 1969-1997

The Saudi Arabian current account (CA) has fluctuated sharply over the last thirty years. The Saudi government has striven to manage its CA balance over time by making necessary adjustments in internal expenditures to achieve intertemporal optimization. This paper tests the effectiveness of such a government policy by way of an intertemporal approach to CA. The estimation results (Granger-causality test, formal test, and equality-of variances test) indicate that the model captures the statistically important features of the current account behavior for the period of 1969-1997, which demonstrates a high level of effectiveness in the Saudi CA management.