Comparative Analysis of Standard RAS Method with a New Procedure in Analyzing the Economic Effects of Gasoline Price Shock

Document Type : Original Article

Authors

1 Associate Professor of Energy Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran Iran

2 Professor of Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran Iran

3 MA in Energy Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran Iran

Abstract

One of the basic assumptions in input-output tables is technology stability and consequently the stability of production multipliers. In this study, using a new approach based on the RAS update method, we show that how an exogenous policy shock such as rising gasoline prices changes production multipliers compared to an updating on a Standard RAS. Unlike the conventional RAS method, in addition to changing the technological structure of production due to gasoline price shock, in order to link household consumption and income of production factors, value added, and final demand are adjusted based on gasoline price shock and thus the relationship between household income and consumption and its connection with the price is highlighted. To provide value-added adjustment scenarios and final demand, an increase in the price of gasoline from 10,000 rials per liter to 30,000 rials has been considered. For this purpose, the input-output table of the Central Bank of Iran for 2016 has been employed. The findings indicate that due to the increasing the price of gasoline, the production multipliers for all economic activities except gasoline have been reduced using the proposed method compared to the standard RAS model. Examination of the results obtained for the total cost of production and output of all economic activities also shows that the highest increase in production cost and the lowest decrease in total output is related to gasoline.

Keywords

References

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Journal of Economics and Modelling
Volume 12, Issue 3 - Serial Number 47
December 2021
Pages 71-105

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