Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/78431
Title:

# The Law of Aggregate Demand : Empirical Evidence From India Using Nonparametric Direct Average Derivative Estimation procedure

Authors:
Chakrabarty, Manisha
Year of Publication:
2001
Series/Report no.:
Bonn Econ Discussion Papers 37/2001
Abstract:
This paper attempts to provide empirical evidence of the positive definiteness of the mean income effect matrix, a sufficient condition for market demand to satisfy the {\it law of demand} derived by H\{a}rdle, Hildenbrand and Jerison [HHJ(1991)]. Increasing heterogeneity in spending of populations of households leads to this sufficient condition which is falsifiable from cross-section data. Based on this framework we use the National Sample Survey (NSS) 50-th round data (1993-1994) for the rural sector of Maharashtra > to examine the empirical viability of this condition. Due to a restrictive assumption on the density function and several other limitations of the indirect method we use the nonparametric direct average derivative estimation procedure [Stoker (1993)], unlike the indirect method used in the HHJ paper. It is shown that the income effect matrix is, indeed, positive definite. The required heterogeneity condition is also well supported in this data where one can not expect too much variation in spending patterns of population given the source of data, i.e., rural sector of a developing economy.
Subjects:
Aggregation
Heterogeneity
Income effect
Law of Demand
Average derivative estimator
Nonparametric regression
JEL:
D12
C12
C14
Document Type:
Working Paper
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