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Estimating gasoline product demand in Iran during the period from 1995 to 2017 using the state-space model and relevant guidelines for price liberalizations

Hooshmand Hashemi (), Teimor Mohamadi (), Farzeneh Khalili () and Farid Asgari ()
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Hooshmand Hashemi: Ph.D student at Abhar Azad University
Teimor Mohamadi: Associate Professor of Economics (Corresponding Author), Allameh Tabatabaee University, Faculty of Economics, Tehran. Iran
Farzeneh Khalili: Assistant Professor of Economics, Abhar Azad University, Abhar, Iran
Farid Asgari: Assistant Professor of Economics, Abhar Azad University, Abhar, Iran

Quarterly Journal of Applied Theories of Economics, 2020, vol. 7, issue 1, 1-28

Abstract: The purpose of this paper is to estimate the gasoline demand function via the state-space model and the implications for its price liberalization by using the Kalman filter method in the framework of time-varying coefficients model. For this purpose, data from the Energy Balance Sheet and the National Iranian Oil Refining and Distribution Company were used during the years 1374-1396. The results of the estimation of the model indicate that the price elasticity of gasoline varies in the studied period and after the implementation of subsidy targeting (1389 to 1396), in some of the seasons of the year, absolute value of the price elasticity of gasoline increased and decreased in some seasons. With three different scenarios, it is anticipated that with the increase of 10% in the price of gasoline in the sixth development plan, the demand for gasoline does not decrease unlike expectations. Also, because absolute value of the elasticity of the price of gasoline at the beginning of the sixth of developmental program is greater and lower at the end of the program, increasing of the price of the gasoline should not be the same over the program. It is recommended that planners and policymakers to control gasoline demand are advised to increase the price of gasoline in the sixth of developmental plan by more than 10 %, and this price increase from the beginning of the program to the end of the program is ascending

Keywords: Gasoline demand; State-space model; Kalman filter technique; Time varying coefficients (search for similar items in EconPapers)
JEL-codes: C22 C32 Q41 Q43 (search for similar items in EconPapers)
Date: 2020
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