Liquidity preference in a portfolio framework and the monetary theory of Kahn
AbstractThis paper examines the relation between variations in the propensity towards liquidity preference, price-adjustment and shifts in portfolio allocation by expanding Kahn's idea of marginal equilibrium under strong uncertainty in financial markets and contributes to recent post-Keynesian attempts to develop a liquidity preference theory of asset prices by providing an analysis of the price-adjustment mechanism. The notion of the own-rate of money interest is utilised to develop a multi-asset liquidity preference framework, which is consistent with uneven variations of liquidity-premia across assets in response to changes in the degree of strong uncertainty that is specific to different investors with variable allocation of assets in their portfolios. More specifically, in the context of this portfolio framework it is established that an increase in the state of strong uncertainty (state of bearishness) makes less liquid assets further less inconvenient than more liquid assets. In periods characterised by greater strong uncertainty, equilibrium is restored through a greater demand for more liquid assets including money relative to the demand for less liquid assets and, therefore, through a higher own-rate of money interest for less liquid assets than warranted, which shows the ineffectiveness of standard monetary policy. Copyright The Author 2010. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Oxford University Press in its journal Cambridge Journal of Economics.
Volume (Year): 35 (2011)
Issue (Month): 4 ()
Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Web page: http://www.cje.oupjournals.org/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Koutsobinas, Theodore, 2011. "Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework," MPRA Paper 43027, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.