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On Keynesian Theories of Liquidity Preference


  • Bibow, Jorg


This essay offers a macroeconomic perspective on the interaction between the financial system and the level of economic activity, focusing on the relationship between liquidity preference, investment, and the role of confidence. The analysis builds on the distinction between portfolio decisions on the one hand, and production and spending decisions on the other. Two prominent Keynesian theories of liquidity preference, those of J. Tobin and J. R. Hicks, are assessed. It is argued that while both of these theories offer illuminating insights into particular aspects of Keynes's monetary thought, they must be qualified in respect of their bearing on the theory of liquidity preference. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Bibow, Jorg, 1998. "On Keynesian Theories of Liquidity Preference," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(2), pages 238-273, March.
  • Handle: RePEc:bla:manch2:v:66:y:1998:i:2:p:238-73

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    References listed on IDEAS

    1. Davidson, Russell & MacKinnon, James G, 1984. "Model Specification Tests Based on Artificial Linear Regressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 485-502, June.
    2. Russell Davidson & James G. MacKinnon, 1996. "The Size and Power of Bootstrap Tests," Working Papers 932, Queen's University, Department of Economics.
    3. Taylor, Larry W., 1987. "The size bias of White's information matrix test," Economics Letters, Elsevier, vol. 24(1), pages 63-67.
    4. Lancaster, Tony, 1984. "The Covariance Matrix of the Information Matrix Test," Econometrica, Econometric Society, vol. 52(4), pages 1051-1053, July.
    5. Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
    6. West, Kenneth D & Wilcox, David W, 1996. "A Comparison of Alternative Instrumental Variables Estimators of a Dynamic Linear Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 281-293, July.
    7. Chesher, Andrew, 1983. "The information matrix test : Simplified calculation via a score test interpretation," Economics Letters, Elsevier, vol. 13(1), pages 45-48.
    8. Hendry, David F., 1984. "Monte carlo experimentation in econometrics," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 16, pages 937-976 Elsevier.
    9. Davidson, Russell & MacKinnon, James G, 1992. "A New Form of the Information Matrix Test," Econometrica, Econometric Society, vol. 60(1), pages 145-157, January.
    10. Fischer, N. I. & Mammen, E. & Marron, J. S., 1994. "Testing for multimodality," Computational Statistics & Data Analysis, Elsevier, vol. 18(5), pages 499-512, December.
    11. Orme, Christopher, 1988. "The Calculation of the Information Matrix Test for Binary Data Models," The Manchester School of Economic & Social Studies, University of Manchester, vol. 56(4), pages 370-376, December.
    12. Alastair Hall, 1987. "The Information Matrix Test for the Linear Model," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 257-263.
    13. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
    14. Chesher, Andrew & Spady, Richard, 1991. "Asymptotic Expansions of the Information Matrix Test Statistic," Econometrica, Econometric Society, vol. 59(3), pages 787-815, May.
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    Cited by:

    1. Jorg Bibow, 2005. "Liquidity Preference Theory Revisited: To Ditch or to Build on It?," Economics Working Paper Archive wp_427, Levy Economics Institute.
    2. Joerg Bibow, 2005. "Liquidity Preference Theory Revisited—To Ditch or to Build on It?," Method and Hist of Econ Thought 0508003, EconWPA.
    3. Stracca, Livio, 2005. "Liquidity and real equilibrium interest rates: a framework of analysis," Working Paper Series 542, European Central Bank.
    4. Jörg Bibow, 2001. "The Monetary Policies of the European Central Bank and the Euro's (Mal)Performance: A Stability-Oriented Assessment," Macroeconomics 0109004, EconWPA.
    5. Jorg Bibow, 2002. "The Monetary Policies of the European Central Bank and the Euro's (Mal-)Performance: A stability-oriented assessment," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 31-50.

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