- Title
- Revisiting the concept of liquidity in liquidity preference
- Creator
- Culham, James
- Date
- 2020
- Type
- Text; Journal article
- Identifier
- http://researchonline.federation.edu.au/vital/access/HandleResolver/1959.17/174418
- Identifier
- vital:14812
- Identifier
-
https://doi.org/10.1093/cje/bez057
- Identifier
- ISBN:0309-166X (ISSN)
- Abstract
- This paper revisits Keynes's theory of liquidity preference to emphasise its reliance on liquidity. By clarifying the meaning of 'liquidity' in the context of the theory, it is argued that liquidity preference is not based on the demand for money, the most tradable asset, or a theory of bearishness. Instead, liquidity preference represents a demand for price-protected (capital-safe) assets, most directly inside and outside money, but also cash-equivalent quasi-money such as self-liquidating assets and security repurchase agreements (repo). The theory of liquidity preference explains that the public is willing to forgo interest income to hold short-term price-protected assets due to the capital and price uncertainty associated with relying on market liquidity, or how easy it is to convert an asset into money. It follows that the rate of interest is a monetary phenomenon and is determined independently of saving and investment. © 2019 The Author(s) 2019. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.
- Publisher
- Oxford University Press
- Relation
- Cambridge Journal of Economics Vol. 44, no. 3 (2020), p. 491-505
- Rights
- Metadata is freely available under a CCO license
- Rights
- Copyright © The Author(s) 2019. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.
- Rights
- Open Access
- Subject
- 1401 Economic Theory; 1402 Applied Economics; 1499 Other Economics; Asset pricing; Liquidity; Liquidity preference
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