Macroeconometric models are commonly used for simulating economies in the short and medium terms. Existing global models however tend to use an oversimplified representation of Saudi Arabia’s economy, which might not be able to provide policymaking with quite accurate and detailed insights. Therefore, KGEMM has been developed to address the following issues:
(a) Analyze the effects of different policy choices, such as energy price and fiscal policy changes, on the economy.
(b) In particular, assess the effects of the Saudi Vision 2030 initiatives and evaluate the feasibility of its targets.
(c) Link Saudi Arabia’s macroeconomic-energy environment with the global economy/energy markets. KGEMM currently has about 700 time series variables interacting through 319 behavioral equations and identities in 8 blocks (Real, Energy, Price, Fiscal, Monetary, External, Wage and Labor Market, Population and Age Cohort). It has been using intensively to assess macroeconomic and energy effects of the energy price and fiscal reforms, the cornerstones of the Fiscal Balance Program (FBP), one of the strategic documents in Saudi Vision 2030 for the last three years. The objective of this project is to enhance adequacy and representativeness of KGEMM through improving the real, external, energy, labor and wage, population and age cohort blocks and adding new financial block. More specifically, it will address the following issues:
- Develop investment equations for 8 sectors
- Develop wage equations for 8 sectors
- Develop employment equations for 8 sectors using sector-specific wages
- Extension of External Sector (Balance of Payment Structure)
- Development of the Supply Side of the KSA Energy Balance
- Extension of population and age cohorts block (Saudi, Non-Saudi, Age groups, Female, Male, etc.)
- Building a Financial Block in the Model
- Development Regional Electricity Demand Equations
- Incorporate estimated behavioral equations and identities into KGEMM
- Review the KGEMM structure and performance.