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Liquidity: Its Origins and Implications in an Uncertain Multiperiod World with Limited Borrowing

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  • Edward Miller

Abstract

If borrowing rates exceed lending rates, liquid assets are held to provide an option on future consumption. The rate of time preference exceeds the interest rate. Thus the market value of marketable securities exceeds the present value at the rate of time preference of their cash flows. The interest rate is determined not merely by time preference and capital productivity, but is a number calculated from the values of liquid assets. Inside money has an impact.

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  • Edward Miller, 1994. "Liquidity: Its Origins and Implications in an Uncertain Multiperiod World with Limited Borrowing," The American Economist, Sage Publications, vol. 38(1), pages 36-46, March.
    • Handle: RePEc:sae:amerec:v:38:y:1994:i:1:p:36-46
    DOI: 10.1177/056943459403800105
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    5. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, July.
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