The Impact of Fuel Price on Road Transportation Demand: Time-Varying Parameter and Kalman-Filter Approach

In recent years, the increase of fuel price and implementation of targeted subsidies have the different effects on the economic sectors and especially on the road transportation sector. For this, the road transportation sector has been considered as main sectors in transportation system. The purpose of this paper is to investigate the effect of fuel price on the road transportation demand during 1997-2014. The empirical econometric model has been estimated by TVP and Kalman-Filter algorithm. The main findings of this study reveal that the fuel price and age of transportation system have negative and other explanatory variables such as national income and numbers of vehicles have positive and significant impact on the road transportation in Iran during the period of study. Moreover, the targeted subsidies rule in Iran has led to decrease of road transportation shipment. Hence, the effects of new vehicle and national income are positive in final state and time varying situations.