The structural dependence of the Iranian economy on oil revenues, along with exposure to international sanctions and severe exchange rate fluctuations, has intensified instability and invisible linkages among its macro markets. This study aims to analyze the dynamic and asymmetric transmission of volatility among three markets—monetary base, oil prices, and exchange rates—using the advanced Dynamic Conditional Correlation (DCC-GARCH) model over the quarterly period from 1991 to 2023. To accommodate extreme shocks and asymmetric effects, the Student's t-distribution and the GJR-GARCH specification are employed.
The findings reveal a very strong and stable network of volatility spillovers among these three markets, with their dependence structure exhibiting high persistence. At the intra-market level, negative exchange rate shocks have a far stronger impact on market volatility than positive shocks, whereas positive oil price shocks increase volatility, indicating an oil revenue-liquidity mechanism. Structural shocks resulting from severe sanctions have significantly altered the pattern of these spillovers. Meanwhile, the instantaneous and contemporaneous correlations among the markets are weak and insignificant, which may reflect extensive policy interventions and non-price mechanisms in the Iranian economy.
These results confirm the existence of a deep non-linear linkage through the risk channel, despite the absence of a simple linear relationship between returns. Based on the findings, operational policy solutions such as establishing an exchange rate stabilization fund with an oil-linked rule and implementing a conditional rule for managing the monetary base in response to exchange rate shocks are proposed.