Comparative Analysis of Standard RAS Method with A New Procedure Based on RAS Method to Economic Analysis of Gasoline Price Shock Effects in Iran

One of the basic assumptions in input-output tables is the assumption of technology stability and consequently the stability of production multipliers. In this study, using a proposed 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 economic modeling with 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. In this research, the input-output table of the Central Bank of Iran in 2016 has been employed. The findings of this study 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.