The paper has developed private investment model of the Ethiopian case sincernprivate investment is the main factor for economic growth , alleviation ofrnpoverty and the upgrading of social capital and services. Added to this,rninterest in private investment also grew overtime because of its sensitivity tornpolicy environment r elative to public investment. These developments furtherrnaccentuated interest in the determinants of private investment in. developingrncountries . Most developing countries rely on exchange rate devaluation, higherrndomestic interest rates and a mix of fiscal and credit contraction policies f orrnestablishing of aggregate demand. The main interest for the study is to accessrneffect of changes in macroeconomic policies on private investment .rnThe key aspect of our methodology is the application of co integrated VAR model.rnThe use of co integrated VAR model helps account for spurious correlation andrnerogeneity bias as it is designated for no stationary time series , and requiresrnno endo-exogenous division of variables . And vector error correction modelsrn(VEMSI introduced in co integrated VAR technique distinguish clearly betweenrnlong run and short run impacts , providing a suitable tool for policy analysis.rnThe results suggest that the overall effect public investment had a crowding inrnimpact on the private investment over the study of the period , in the long runrnand short run. On the other, hand the impact of devaluation policy hasrnsignificant and positive on private investment in the longer but it isrninsignificant on the short run. Monetary policy in the form of restrictingrndomestic credit appears to have had a significant impact on private investment.rnThis is well indicated by the significant positive impact of banking sectorrncredit on the private investment, suggesting that a restrictive monetary policyrnmay lead to shrinking private capital formation by tightening financialrnconstraint on private forms. Real output or demand reports significant directrnlong run and short run effect on private investment over the period of thernstudy. The positive significant relation provides for the validity of thernhypothesis that accelerator principle does explain private sector investment.rnIncrease in real interest rate indicating that costs of funds did matter forrnprivate investors in Ethiopia. Macroeconomic instability proxies by thernvariability of the inflation rate and terms of trade have insignificant impactrnbut real GOP volatility has significant and negative impact .