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Confidence and alternative Keynesian methods of asset choice

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  • David Dequech

Abstract

This article elaborates the analysis of asset choice proposed by Keynes and later adopted by Post Keynesians such as Paul Davidson and Hyman Minsky. The article incorporates the essential aspects of the theory of confidence presented in Dequech (1999), first into an investigation of the relation between confidence and the liquidity premium and then into the broader theory of asset choice. Keynes considered two methods of determining planned investment expenditures: one method is based on the comparison between the marginal efficiency of capital and the interest rate; the other is based on the comparison between the demand price and the supply price of a particular capital good. Both methods can be generalized for asset choice, with investment as a particular case. The article refines and develops these two methods so as to specify more precisely the influence of confidence and speculation on the determination of liquidity premia and hence on the several assets' profitability.

Suggested Citation

  • David Dequech, 2005. "Confidence and alternative Keynesian methods of asset choice," Review of Political Economy, Taylor & Francis Journals, vol. 17(4), pages 533-547.
  • Handle: RePEc:taf:revpoe:v:17:y:2005:i:4:p:533-547
    DOI: 10.1080/09538250500252922
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    References listed on IDEAS

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    1. J. M. Keynes, 1937. "The General Theory of Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 51(2), pages 209-223.
    2. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    3. Robert A. Jones & Joseph M. Ostroy, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 13-32.
    4. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar Publishing, number 474.
    5. David Dequech, 1999. "Expectations and Confidence under Uncertainty," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 21(3), pages 415-430, March.
    6. David Dequech, 2000. "Fundamental Uncertainty and Ambiguity," Eastern Economic Journal, Eastern Economic Association, vol. 26(1), pages 41-60, Winter.
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    Cited by:

    1. Dow Alexander & Dow Sheila C., 2011. "Animal Spirits Revisited," Capitalism and Society, De Gruyter, vol. 6(2), pages 1-25, December.
    2. Konstantinos Loizos, 2020. "The interbank market, Keynes’s degree of confidence and the link between banks’ liquidity and solvency," Working Papers PKWP2017, Post Keynesian Economics Society (PKES).
    3. Konstantinos Loizos, 2014. "How financial innovation might cancel out bank regulation along financial cycles. A Keynes's state of confidence interpretation," Working Papers PKWP1403, Post Keynesian Economics Society (PKES).

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