Where,<sup>_x_</sup> _t_<sup>is a dependent variable,</sup><sup>_z_</sup> _t_<sup>stands for a vector of explanatory variables,</sup> _ECMt_  1is one lagged the residuals from the long-run model, _vyt_ – is the residuals which are expected to be white noise. If αy falls the interval of (-1 0) and is statistically significant; it can then be concluded that the variables exhibit a stable cointegrated relationship and short-run fluctuations are corrected in the long-run equilibrium.

The coefficient of the lagged error correction term (α) is expected to be negative and statistically significant for the model to work and converge to the equilibrium path in the long run. This model should be also be tested for stability to ensure the parsimony of the outcomes. (b) The appropriate lag length will be determined based on the general to specific reduction methodology, and the model will also test for stability and the well-defined nature of the relation between the four variables in the short and long run. The exclusion of statistically insignificant variables and performing the comprehensive set of autocorrelation, serial correlation, normality, heteroscedasticity, and misspecification tests is critical to reach a more parsimonious specification for the model. For this deliberation, Oxmetrics 6.1 will be used as the key econometric package for related quantitative modeling.

# **Hypothesis to Be Tested, Variable Selection and Data Issues**

This section follows Modigliani & Brumbreg (1954) LCH motivation as adopted by Loayza, Schmidt-Hebbel, and Servén (2000) specification for empirically testing for determinants of savings. We test the null hypothesis (��) that aggregate private savings in Egypt vary positively with real per capita income, interest rate, yet it varies negatively with inflation, and the level of financial development (M2 to GDP).

The following equation represents the regression equation with expected signs shown between brackets based on theory:

### **_Real Gross Private Savingst =_**

_f(Growth in real per capita incomet-k, M2 to GDPt-k, Inflationt-k, Real interest ratet-k)_ (+/-) (-) (-) (+) This paper will investigate short and long run relationships between the variables of interest using the above mentioned econometric procedure.

## **Real Gross Private Savings Per-Capita**

Gross private saving is generally computed as the difference between gross national saving and the relevant definition of gross public saving (Loayza, Schmidt-Hebbel and Servén 1999). The applicability of this definition is challenged in developing economies that suffer from a weak national accounting framework. Accordingly, saving behavior in developing countries has been predominantly examined using multi-country cross-sectional data, which has produced dubious results given vast disparities among countries with respect to the nature and quality of data. This makes cross-country comparisons and policy recommendations difficult as it is fraught with danger. (Athukorala and Sen 2001). This was the main limitation for studying private savings behavior in Egypt in the past. For example, Al-Mashat (2006) used non-government time deposits to GDP as a proxy for private savings to assess the probable relation between financial sector 11