Structure of financial savings during Indian economic reforms

Author name: 
Jha R
Longjam IS

This paper conducts nonparametric tests to examine whether data on financial savings in India can be rationalized in terms of a utility function of a representative economic agent. The nonparametric test has an advantage over its parametric counterpart in that it does not assume the existence of a utility function per se and checks whether the representative consumer’s demand structure can at all be rationalized by a utility function. Our test results of the necessary and sufficient conditions of the weak separability hypothesis suggest that data on financial savings in India are consistent with the existence of a utility function for a representative individual with a sub-preference where contractual savings (insurance and provident funds) can be separated out. This result could facilitate the construction of a suitable financial aggregate using these assets.

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