This research is part of a joint project between the Saudi Arabian Monetary Authority (SAMA) and the King Abdullah Petroleum Studies and Research Center (KAPSARC). This paper estimates a micro-based life cycle consumption model for Saudi Arabia over the period 1970-2017 The estimate of consumption behavior in this paper is identified as centering on the income effect and the wealth effect: The income effect is defined as the direct impact on consumption of a variation in income. The wealth effect is defined as a consumer’s perception of a change in his or her wealth and a concomitant decision either to liquidate some of that wealth to enable an increase in consumption (in the case of a positive wealth change) or to decrease consumption in order to restore the consumer’s desired level of wealth (in the case of a negative wealth change). The wealth effect on consumption can be substantially different from the income effect because it is more closely related to consumers’ expectations of, and fluctuations in, the value of real and financial assets. The authors’ estimation shows that both income and wealth have significant effects on household consumption in Saudi Arabia, with a long-run marginal propensity to consume (MPC) out of income of around 0.73-0.95, and out of wealth of around 0.06. The sensitivity of consumption to income and wealth in Saudi Arabia appears to be consistent with the growth of the Saudi economy.February 5, 2019
Axel leads the Energy and Macroeconomics program and has a special interest in applied research combining methodological innovation and practical relevance for policymaking. He joined KAPSARC in 2011, after spending 15 years at IFP Energies Nouvelles in France where he led research, consulting and training projects. Axel received his Ph.D. in Economics from Pantheon-Sorbonne University in Paris. His research focus is on energy economics and policy, corporate finance, and oil pricing. He has published more than 30 papers in peer-reviewed journals.