There are two main reasons for studying investment in an economy. First, the combination of firms? investment demand and household?s saving supply determines how much of an economys? resoures is invested. Second, investment is highly volatile; thus investment demand may be important in the short-run fluctuations. The present article examins the relationship and veracity of existence of banks profit rate (as a proxy for interest rate) with the level of pricate sector investment in the short and log-run in Iran. For this purpose, using the method of Auto Regressive Distributed Lags, the model is estimated, and a negative and significant relation is found between credit rate with private sector investment both in short-term & long-term horizons.
JEL Classification: R24, E22