Precautionary demand

Also found in: Wikipedia.

Precautionary demand (for money)

The need to meet unexpected or extraordinary contingencies with a buffer stock of cash.

Precautionary Demand for Money

In Keynesian economics, a need for money resulting from an unforeseen situation. Medical bills following an accident are an example of precautionary demand. According to John Maynard Keynes, people keep savings accounts, as well as some stocks and commodities, in order to cover precautionary demand if and when it occurs.
References in periodicals archive ?
2 percent of NDA) due to higher than-expected demand for currency, mostly driven by the financial transactions tax on non-filers of income tax returns and strong precautionary demand for liquidity in advance of the Eid holidays in early July.
The choice of the data range is explained through two criteria: i) the availability of the data and, ii) we choose this range because it includes major economic crisis and political events (4) corresponding to two type of oil shocks: aggregate demand-side oil price shocks and precautionary demand shocks.
Precautionary demand can be driven by sectors of the energy industry that have a direct use for crude oil, such as those involved in the refining business.
However, the spot began to pick up during the fourth quarter, as OPEC supply fell and geopolitical tensions rose, leading to a buildup in precautionary demand (inventories).
Fourth, inter-bank markets were significantly impaired because of the precautionary demand for liquidity of banks exposed to rollover risks.
This precautionary demand is currency substitution.
the usual reason for insurance purchases), whereas prudence gauges the precautionary demand.
Thus, precautionary demand for savings falls--current consumption is higher.
In other words, this "M1 problem" is simply a result of the fact that an increase in the precautionary demand for money can be satisfied by either an increase in demand for M1 or an increase in demand for NM1M2 (and perhaps NM1M3).
On the global level, the current stock-to -sue ratios for corn and soybeans are lower than they were during 2007 -08, but are higher for rice and wheat, Many regions have undertaken self-sufficiency initiatives to reduce their dependence on global food market, and some regions increased their precautionary demand for key grains to mitigate food price increases while others initiated food and fertilizer subsidies and farm lending programs.
Uncertainty regarding the level of international reserves also encouraged a precautionary demand for gold and dollars, putting significant depreciation pressures on the exchange rate, it said.
Limited Access to International Financial Markets and the Precautionary Demand for International Reserves by Developing Countries