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Printliquidity preference
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by
Steven
N.
Durlauf
and
Lawrence
E.
Blume
Alternate versions available:
1987 Edition
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Abstract
Keynes's notion of liquidity preference stems from the fact that he made some specific sources of demand for monetary instruments depend upon the expected variations of the interest rate, and consequently on the expected variations in the capital value of financial assets. This source of demand was considered to be the cause of variations in the rate of interest. Economists close to Keynes realized that in the General Theory he had turned the analysis of liquidity preference into a new theory of the interest rate. Robertson defended the marginalist theory, while Hicks paved the way for the ‘neoclassical synthesis’.
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Keywords
Cambridge equation; central bank money; finance motive; Hicks, J. R.; IS–LM models; Keynes, J. M.; liquidity preference; loanable funds; marginalist theory of the rate of interest; monetary instruments; natural rate and average rate of interest; neoclassical synthesis; precautionary motive; reserves–loans ratio; Robertson, D.; saving and investment; simultaneous equilibrium; speculation; speculative motive; subjective probability; temporary equilibrium; Tobin, J.; transaction motive; uncertainty; Walras's LawHow to cite this article
Panico, Carlo. "liquidity preference." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 02 September 2010 <http://www.dictionaryofeconomics.com/article?id=pde2008_L000114> doi:10.1057/9780230226203.0980
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