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The mission of monetary policy is to conduct countercyclical policy, however, this is not a universally practiced norm. Pro‐cyclical fiscal and monetary policies during boom periods have often been observed in developing countries and tend to amplify the impact of positive commodity price shocks. The consequence is strengthening of domestic inflationary pressures and appreciation of the exchange rate. This paper examines counter‐cyclicality of monetary policy and the role of fiscal policy in this regard. The stance of fiscal policy and the manner of financing government expenditures have a significant effect on the conduct of monetary policy. Our empirical observations indicate that, fiscal and monetary policies in Iran are generally expansionary, particularly during economic booms, often resulting in subsequent large depreciation of the domestic currency followed by higher inflation rates and economic slowdown. Under fiscal dominance, monetary policy is ineffective and both targets and instruments of monetary policy will not be under the control of the central bank. A structurally balanced fiscal rule that maintains an aligned exchange rate allows effective countercyclical monetary policies and discourages excessive foreign financing. Moreover, policy measures that increase more reliance on domestic resources are the appropriate policy measures that makes the economy more resistant to external shocks.

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In light of the ongoing growth in hedge fund and investment bank exposure in the NYMEX WTI crude oil futures market since the global financial crisis, we have applied linear causality tests to identify if each individual trader group in the disaggregated commitment of trader's report have prior destabilising effect on market return (the rate of change in crude oil prices), price volatility and the futures‐spot spread in the period 2009–2015. Consistent with the CFTC's disaggregated classification system, the trader groups considered are physical participants, swap dealers and money managers. In order to capture the nonlinear causality relationship, the Diks and Panchenko (Journal of Economic Dynamics and Control, 2006, 30, 1647) non‐parametric causality approach has also been utilised. Test results demonstrate that changes in the net positions of physical participants has both linear and nonlinear positive causality on expected market return, as well as feedback loops. Change in swap dealers net position, however, only have linear bidirectional causality with market return and futures‐spot spread, with unidirectional Granger causality with price volatility. While money managers were not price trend followers, they have preceding influence on market risk and return dynamics. It can be concluded that swap dealers and money managers have distortionary effect on market return, price volatility and the futures‐spot spread. Instead, Physical participants distortionary effect is restricted to market return.