Grouping of Monetary Assets in Iran Based on Nonparametric Approach to the Money Demand

Among the most basic assumptions in microeconomics, utility maximization and separability of items in the consumer utility function is the most important, both in terms of theory and empirical application. The purpose of this study was to evaluate nonparametric test results from these assumptions on consumer behavior in monetary assets in Iran. For this purpose, we used Hal Varian approach to test compatibility with the principle of utility maximization (GARP), and also the weak separability test.By using monthly data for the period 2008:3 to 2013:2, the results indicate that monetary asset data is not generally consistent with GARP, due to the violation of two observations. Therefore, in accordance with the standard procedure, two sub-sample of time 2008:3 to 2010:2 and 2010:3 to 2013:2 has been tested and their compatibility was approved without any violation. Then we apply weak separability test of utility function to 15 sub-group of monetary assets. According to the results, necessary and sufficient condition of weak separability were satisfied in some of the sub-groups in the first and second sub-sample. Finally, we can generally conclude that there are periods of data in which in some sub-group of monetary assets, if a specific functional form of money demand is rejected in the literature of money demand, doesn’t mean the rejection of the utility-based analysis of demand for money, but it would mean the rejection of specification of the specific function or rejection of the specific group of monetary assets