Dynamics of Oil Market Shocks, Global Aggregate Demand, and the Iranian Stock Market: A Time-Varying Parameter Structural Vector Autoregression (TVP-SVAR) Approach

Document Type : Research Paper

Authors

1 PhD student of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

2 Associate Professor, Department of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

3 Assistant Professor, Department of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

Abstract

With increasing uncertainty in the global oil market due to political and economic turmoil, understanding how and to what extent the stock market is affected has become important. This paper examines the dynamics of structural shocks in the oil market, global aggregate demand, and the Iranian stock market. Following the Kilian (2009) approach, structural shocks, including oil supply shocks, aggregate demand shocks, and precautionary demand shocks, are identified using the SVAR model, and the effects of these shocks on the Iranian stock market are examined using a Vector Autoregression model with time-varying parameters. For this purpose, monthly time-series data covering the period from December 2008 to September 2025 are used. The results show that oil supply shocks have a negative and short-term effect, aggregate demand shocks have a fluctuating effect that is predominantly close to zero, and precautionary demand shocks have a negative and transitory effect on Iranian stock returns. In addition, return shocks generate a positive but limited response in the market itself, indicating short-term return dependence. The intensity and magnitude of the effects of the shocks increase during periods of political and economic instability, including the twelve-day war between Iran and Israel and the activation of the snapback mechanism. The findings emphasize the importance of distinguishing between different types of oil shocks and taking into account the internal dynamics of the stock market to understand market responses and design optimal economic and investment policies.

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References

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Applied Theories of Economics
Volume 13, Issue 3 - Serial Number 50
September 2026
Pages 113-142

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