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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.

Suggested Citation

  • 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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    References listed on IDEAS

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    1. Edward M. Miller, 1978. "The Effect of Monopoly Power on National Income, Wage Income and Interest Rates," American Journal of Economics and Sociology, Wiley Blackwell, vol. 37(4), pages 349-358, October.
    2. A. Sandmo, 1970. "The Effect of Uncertainty on Saving Decisions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 37(3), pages 353-360.
    3. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, October.
    4. Floyd, John E & Hynes, J Allan, 1972. "The Contribution of Real Money Balances to the Level of Wealth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(2), pages 260-271, May.
    5. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
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