Determinants of Private Saving in IRAN With Emphasis on Real Exchange Rate and Borrowing Constraints

This paper examines the factors that affect private savings in Iran using Johansen and Juselius co-integration and vector error correction model. This paper the effect of variables such as real exchange rate, borrowing constraints, GDP, interest rate, inflation and fluctuation caused by War and Oil Revenues are examined. We use Banking profit rate instead of interest rates due to lack of data related to variable interest rates. And instead of borrowing constraints we use ratio of the banking system credits granted to the private sector to GDP, and private sector Liquidity to GDP. The result show that, impact of GDP, interest rate and Shocks from oil revenues in 1974 have positive effect on Private savings. Also, effect of real exchange rate, inflation and fluctuation caused by Iran-Iraq War have negative effect on Private savings. On the other, effect of borrowing constraints on private saving is ambiguous. Vector error correction coefficient is negative and equal -0.9 and mean that if a shock affects private savings, in a short run time 90% of this variance is corrected and again reach the equilibrium.