Precautionary Saving in Iran Incomplete Financial Markets: Heterogeneous Agent Model Approach

Despite borrowing constraint and incomplete financial markets in Iran economy, grasping how economic agents behave in these situations is very crucial. This paper attempts to investigate saving behavior in Iran by solving Ayagari heterogeneous agent model numerically. The paper concludes that precautionary saving increases in uncertain environment and in extreme uncertain cases it reaches 30 percent of total saving of Iran economy. These huge resources that go to real asset markets like exchange or real estate as a speculative attack decreases household consumption from golden rule consumption level and cause fluctuations in market prices.