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To achieve sustainable economic growth, Saudi Vision 2030’s target is to improve Saudi Arabia’s ranking on the Global Competitiveness Index from 25 in 2015–2016 to within the top 10 by 2030. Saudi Arabia also aims to increase the share of non-oil exports in the non-oil GDP from 16% in 2016 to 50% by 2030. For policymakers to make informed decisions to achieve these goals, they need to understand the driving forces of Saudi Arabia’s competitiveness. To this end, we consider the real effective exchange rate (REER) as a measure of external price competitiveness, as it captures domestic and global price changes. We then examine the REER using a two-stage modeling framework. First, we estimate the REER equation, which allows us to assess the impacts of the determinants and evaluate currency misalignments as a competitiveness indicator. Second, we extend the KAPSARC Global Energy Macroeconometric Model (KGEMM) with the estimated equation, which provides a framework for simulating the competitiveness impacts of the theoretically formulated determinants and other variables relevant to policymakers. The framework also allows us to account for feedback loops. We conduct a policy scenario analysis to quantify the competitiveness effects of the Public Investment Fund’s (PIF) new strategy for 2021–2025. We derive the following policy insights. Authorities may wish to implement initiatives boosting future productivity and, thus, competitiveness, such as PIF investments. Policymakers should be regularly informed about currency misalignment. Government consumption and public investment projects should consider substituting imports with locally produced goods and services. Local content development would also help to diversify the Saudi economy. Finally, attracting more foreign investment and other assets from the rest of the world may lead to technological development and improvement in the economic, financial, and social infrastructure and business environment, all enhancing competitiveness.

This PhD thesis re-examines a long-standing debate about the link between the exchange rate and its macroeconomic fundamentals, with particular attention to two measurements - first, instability and second, uncertainty - in explaining the dynamics of the real effective exchange rate over the past 24 years. At the same time, studies the relationship between economic policy uncertainty and inflation rate. The mission of this thesis is to address these matters of interest in three different studies as follows, the impact of stability and uncertainty on exchange rate dynamics in the first two empirical chapters and the impact of economic policy uncertainty on inflation rate in the last empirical study. The empirical applications emphasise the use of the Vector Error Correction Model (VECM), Autoregressive Distributed Lag Model (ARDL) and Vector Autoregression Model (VAR) in assessing the relationship between the variables under analysis. The thesis contribution to the literature can be seen in three main ways. Firstly, it applies and tests both, the Behavioural Equilibrium Exchange Rate (BEER) and Permanent Equilibrium Exchange Rate (PEER) framework in a single developed economy in order to compute currency misalignments. Secondly, it emphasises the impact of political stability and economic policy uncertainty on the UK real effective exchange rate and thirdly, links inflation rate to economic policy uncertainty in the aftermath of the 2016 UK vote to leave the EU. We conclude that our empirical results are consistent with literature findings, suggesting that the political stability indicator and the economic policy uncertainty index explain long run fluctuations in the exchange rate dynamics. The value of the inflation rate increases due to the shocks on economic policy uncertainty while the UK currency depreciates due to uncertainty shock. Esta tese de doutoramento reexamina um longo debate sobre a ligação entre a taxa decâmbio e os seus fundamentos macroeconómicos, com particular atenção duas medidas: a instabilidade política e a incerteza de política económica. Esta análise foca-se na dinâmica da taxa de câmbio efectiva real no Reino Unido nos últimos 24 anos. Adicionalmente, estudamos no mesmo contexto a relação entre a incerteza de política económica e a taxa de inflação. A tese aborda estas questões em três estudos empíricos diferentes. O impacto da estabilidade e incerteza na diâamica da taxa de câmbio será estudada nos dois primeiros capítulos empíricos, enquanto que o impacto da incerteza da política económica na taxa de inflação será o tema do último estudo empírico. As aplicações empíricas analisam a relação entre as variáveis utilizando o Modelo de Correcção de Erros Vectoriais (VECM), o Modelo Autoregressivo de Lag Distribuído (ARDL) e o Modelo Vectorial de Autoregressão (VAR). A contribuição da tese para a literatura centra-se em três pontos principais. Em primeiro lugar, aplica-se e testa-se o Modelo de Equilíbrio Comportamental (BEER) e o Modelo de Equilíbrio Permanente (PEER) numa economia desenvolvida, a fim de calcular os desalinhamentos cambiais. Em segundo lugar, sublinha-se o impacto da estabilidade política e da incerteza da política económica na taxa de câmbio efectiva real do Reino Unido. Em terceiro lugar, relaciona-se a taxa de inflação com a incerteza da política económica no rescaldo da votação de 2016 no Reino Unido para deixar a UE. Concluímos que os nossos resultados emíricos são consistentes com as conclusões da literatura, sugerindo que o indicador de estabilidade política e o índice de incerteza da política económica explicam flutuações de longo prazo na dinâmica da taxa de câmbio. O valor da taxa de inflação aumenta devido aos choques na incerteza da política económica, enquanto a moeda britânica deprecia-se devido aos choques de incerteza e de instabilidade.

International audience; This paper aims to investigate the relationship between misalignments of real effective exchange rates and real commodity price volatilities in a sample of 46 commodity-exporting countries by considering financial development as the transition variable. We first estimate currency misalignments as deviations of the observed real effective exchange rates from their equilibrium values estimated using the behavioural equilibrium exchange rate (BEER) approach. Then, we rely on panel data and a smooth-transition regression model to estimate commodity price volatilities' non-linear impacts on currency misalignments. Our results indicate that the estimated coefficients are highly significant, and demonstrate that real commodity prices' volatility has a non-linear impact on currency misalignments depending on the country's degree of financial development.

This paper re-examines empirically the relationship between exchange rate regimes and currency misalignments in emerging and developing countries. Using alternative de facto exchange rate regime classifications over the period 1980-2012, it finds strong evidence that performance of exchange rate regimes is conditional on the de facto classification. In particular, this paper shows that the effect of monetary arrangements on currency misalignments depends critically on the ability of these classification schemes to capture adequately dysfunctional monetary regimes.

Research in the international dimensions of optimal monetary policy has long been inspired by a set of fascinating questions, shaping the policy debate in at least two eras of progressive cross-border integration of goods, factors, and assets markets in the years after World War I and from Bretton Woods to today. Namely, should monetary policy respond to international variables such as exchange rates, global business cycle conditions, or global imbalances beyond their in uence on the domestic output gap and inflation? Do exchange rate movements have desirable stabilization and allocative properties? Or, on the contrary, should policymakers curb exchange rate fltuations and be concerned with, and attempt to correct, currency isalignments? Are there large gains the international community could reap by strengthening cross-border monetary cooperation? ; We revisit these classical questions by building on the choice-theoretic monetary literature encompassing the research agenda of he New Keynesian models (see, e.g., Rotemberg and Woodford 1997), the New Classical Synthesis (see, e.g., Goodfriend and King 1997), and especially the New Open Economy Macroeconomics, henceforth NOEM (see, e.g., Svensson and van Wijnbergen 1989, Obstfeld and Rogo¤ 1995). In doing so, we will naturally draw on a well-established set of general principles in stabilization theory, which go beyond open-economy issues. Yet, the main goal of our analysis is to shed light on monetary policy trade-o¤s that are inherently linked to open economies which engage in cross-border trade in goods and assets.

What determines the optimal monetary trade-off between internal objectives (inflation, and output gap) and external objectives (competitiveness and trade imbalances) when inefficient capital flows cause exchange rate misalignment and distort current account positions? We characterize this trade-off analytically, using the workhorse model of modern monetary theory in open economies under incomplete markets–where inefficient capital flows and exchange rate misalignments can arise independently of nominal distortions. We derive a quadratic approximation of the utility-based global policy loss function under fairly general assumptions on preferences and openness, and solve for the optimal targeting rules under cooperation. We show that, in economies with a low degree of exchange rate pass-through, the optimal response to inefficient capital inflows associated with real appreciation is contractionary, above and beyond the natural rate: the optimal policy curbs excessive demand at the cost of exacerbating currency overvaluation. In contrast, a high degree of pass-through, and/or low trade elasticities, warrants expansionary policies that lean against exchange rate appreciation and competitive losses, at the cost of inefficient inflation. The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.