for money comes from holding an asset in anticipation of some contingency.
Leland, H., 1968, Saving and Uncertainty: The Precautionary Demand
for Saving, Quarterly Journal of Economics, 82: 465-473.
He informed that the end-June PC on Net Domestic Assets (NDA) was missed by a small margin of Rs 6 billion (0.2 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.
This gives rise to the 'precautionary demand
' for gold bullion by central banks, fund managers and individual investors, as opposed to 'use demand' by various industries.
So, our finding highlights that the interdependence between stock market and oil market is low in presence of oil precautionary demand
. As our results indicate, the period of 2001-2006, the interdependence is low (less than 0.2).
A wave of extra precautionary demand
for hoarding, not use, raises the price.
In this context, "precautionary demand
" can play an important role in oil price movements.
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
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."
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).