Estimation of a Structural Model for Gasoline and Diesel Demand in Iran's Transportatio Sector

The economic and technical changes which followed the first oil market crisisled to the development of a vast number of models to analyze and forecast energydemand. The transportation sector is one of the most important consumers in theenergy market, especially in the oil products market, and as such, has been subject topolitical interventions of governments. In this context, this paper models gasolineand diesel demand through a three-step maximization of utility function subject toexpenditure constraints in each step. The model is constructed in a structural timeseries models framework, using data for the period 1358-86, and has an invisibletrend component. After transforming the model to state-space form, we apply theKalman filter algorithm to estimate the model through the maximum likelihoodmethod. The results indicate that: 1. the trend is smooth 2. the process of movementis nonlinear. Estimated demand functions show that price elasticity of gasoline anddiesel demand is less than one with short and long-run elasticity for gasoline of -0.24 and -0.3 respectively and for diesel at -0.2 for both. The income elasticity ofdemand for gasoline and diesel is respectively 1.71 and. 84. Sensitivity of demand tovehicle ownership that use gasoline and diesel are 1.41 and 0.75 respectively.