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Managing Oil Revenue Stabilization Funds: A Framework for Developing Policies

Nader AlKathiri, Frederic Murphy and Axel Pierru ()

Discussion Papers from King Abdullah Petroleum Studies and Research Center

Abstract: Oil revenue stabilization funds provide short-run protection against oil revenue fluctuations – in the way that Saudi government deposits and reserve at the Saudi Arabian Monetary Authority (SAMA) have historically served as a buffer to decouple government budget from oil revenue fluctuations. By contrast, sovereign wealth funds create income for future generations to replace revenue streams from depletable resources – one of the purposes of Saudi Arabia’s Public Investment Fund. We developed a framework for optimizing policies for adding to and withdrawing from stabilization funds, which we apply to Saudi Arabia as a case study based on publicly available data. The quantitative results are sensitive to the specific assumptions on the likelihood of particular oil prices arising but the overall results are robust to a wide range of assumptions.

Keywords: Economic modeling; Income Stabilization Funds; Markov Switching Regime Model; Oil Revenue; Oil Revenue Stabilization Funds; Policy Development; Policy Simulation; Sovereign Wealth Funds (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-10
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