liquidity preference


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Related to liquidity preference: Market segmentation theory

Liquidity Preference Hypothesis

A theory stating that, all other things being equal, investors prefer liquid investments to illiquid ones. This is because investors prefer cash and, barring that, prefer investments to be as close to cash as possible. As a result, investors demand a premium for tying up their cash in an illiquid investment; this premium becomes larger as illiquid investments have longer maturities. This theory is more formally stated as: forward rates are greater than future spot rates. John Maynard Keynes was the first to propose the liquidity preference hypothesis. See also: Keynesian economics.

liquidity preference

a preference for holding MONEY instead of investing it. KEYNES identifies three motives for holding money:
  1. TRANSACTIONS DEMAND: money held on a day-to-day basis to finance current purchases;
  2. PRECAUTIONARY DEMAND: money held to meet unexpected future outlays;
  3. SPECULATIVE DEMAND - money held in anticipation of a fall in the price of assets. The amount of money held for these purposes depends on two main factors: the INTEREST RATE and the level of NATIONAL INCOME. See MONEY DEMAND SCHEDULE.
References in periodicals archive ?
The first concerns not the liquidity preference of the rich, but of the banks, the "financial intermediaries." Perhaps animal spirits decline with wealth, though Silicon Valley is not a drowsy venue.
For a critique of the liquidity preference theory and the liquidity trap from an Austrian perspective, see White, The Clash of Economic Ideas, 133-39; Skousen, The Structure of Production.
In this sense, Garrison might be grouped with interpreters like Friedman who "put great emphasis on highly elastic liquidity preference" (Friedman, 1972, p.
It also complements the study of Khemraj (2010) that focuses on the effects of liquidity preference on the loan market assuming default risks.
Randall Wray's paper, entitled 'Keynes's Approach to Money: What can be Recovered?', argues that Keynes in fact adopted conflicting approaches to monetary theory: he proposed a supply-and-demand approach in Chapters 13 and 15, but posited a general theory of asset prices based on liquidity preference in Chapter 17.
The marginal propensity to consume, the marginal efficiency of capital, and the liquidity preference are the key determinants of the level of employment.
(37.) The liquidity preference and money supply curve of the
A sampling of topics: inflation and unemployment, liquidity preference as behavior towards risk, liquidity preference and the theory of interest and money, long-run implications of alternative fiscal policies and the burden of the national debt, investment under uncertainty, hours and employment variation in business cycle theory, and the inconsistency of optimal plans.
This is due to high liquidity preference of domestic banks, strong growth in UAH deposits and ongoing deleveraging of credit portfolios.
"Given the liquidity preference for high-growth assets, any major market correction will be limited.
Unconventional monetary policies have led to a large overhang of liquidity--indeed, their aim w as partly to respond to increased liquidity preference and to ensure that the stability of financial institutions would not be threatened by lack of liquidity.
The productive sector's demand for credit and the banking sector's liquidity preference, that is, the risk assessment of the credit worthiness of the borrowers and the level of perceived risk the banks are willing to assume, drive credit creation (Dow, 2004).