Analyzing the Synchronization of Exchange rate Cycles with Oil Price, Gold Price, and Stock Value in Iran: A Markov-Switching Model with Component Structure

The close correlation between the Exchange market, Oil and Gold, markets have ever been significant for policymakers generally. Recent fluctuations of markets in question in Iran will extend the significance of this study particularly. Therefore, this paper is investigating the mentioned trends and related cycles of the above three markets. By using Markov-switching models firstly, it identifies and analyzes the cycles in the exchange market, oil, and gold markets. Secondly, it is applying non-parametric models to determine the correlation between the very cycles from 1991:Q1-2020:Q2. The results suggest that there is a significant and positive relationship between exchange rates and gold which is at the same time consistent with the cycles as well. That of oil and exchange rate is significant and negative in Iran are in the same periods. Also, the exchange rate and oil compared to the exchange rate and gold are much more at the same regime. In addition, the correlation between exchange rates and oil is stronger than that of exchange rates and gold in the same periods. By applying the results of this article, Iranian policymakers can predict the trends of cycles and can design policies to fix the current fluctuations. By so doing they can resolve the recent macro instability in the Iranian economy and improve the adequate sustainability too.