MONETARY POLICIES FOR FULL EMPLOYMENT AND PRICE STABILITY IN SAUDI ARABIA: AN ENDOGENOUS MONEY APPROACH

Abstract

Despite being a relatively young and prosperous country, Saudi Arabia has recently suffered from substantial rises in unemployment. This dissertation thus examines the root causes for the rise in unemployment and limited monetary policies in Saudi Arabia. It then attempts to provide feasible solutions for these problems. It includes an explanation of the Saudi economic structure and its features. It additionally investigates the historically-rooted causes of unemployment issues in the nation. The dissertation explains the high economic and social costs of unemployment and also calculates the empirical relationship between unemployment and loss in Gross Domestic Product (GDP) utilizing Okun’s law and applying recently-developed panel econometrics techniques; additional details about the social costs of unemployment are also explained. Knowledge of money’s effect on unemployment in Saudi Arabia is currently limited and thus the dissertation explores the ability and affordability of implementing a comprehensive solution to persistently high rates of unemployment. This is done through examining whether or not the nation experiences endogenous money processes wherein loans create deposits and deposits create reserves. In addition to exploring potential methods of achieving full employment and the expected benefits of these methods, the study explained the unique features of the Saudi economy that make said methods particularly easy to facilitate. In essence, this study revealed the iv possibility for the nation to achieve full employment using statistical evidence and the endogenous money supply hypothesis. The primary goal of the dissertation is to develop an approach to achieve full employment ultimately resulting in significant economic benefits for the society as a whole. It employs the endogenous money approach to offer policy solutions for unemployment in Saudi Arabia through transforming the economy into a Knowledge-based economy (KBE). KBE’s pillars are all present in Saudi Arabia save for innovation which could easily be improved because of the high numbers of educated individuals among the unemployed. Thus, this approach could benefit the nation with no foreseeable risks of harm threatened or seen from previous attempts at solutions from Saudi policy-makers.