Money Supply as a Conduit of the Consumption in the Saudi Economy: A Co-integration Approach

Abstract

This paper focuses on exploring the conduit through which wealth, aggregated by broad money supply, affects the real private consumption in the Saudi economy. In other words, the relationship between money supply (proxy of wealth), among other variables, and the real private consumption function. This study covers the period of 1985-2014. The short and long-run relationships are estimated using co-integration techniques. The results support the existence of positive effects of wealth over private consumption. Also, consumption is affected negatively by changes in prices in the long-run.