IDEAS home Printed from https://ideas.repec.org/a/taf/revpoe/v24y2012i1p69-86.html
   My bibliography  Save this article

Portfolio Allocation, Liquidity-Preference and the q Ratio: A Reassessment of the Contributions of Tobin and Kahn

Author

Listed:
  • Theodore T. Koutsobinas

Abstract

This paper compares the implications of Tobin's q theory and Kahn's Post-Keynesian monetary analysis for monetary policy formulation. In recent years, monetary policy formation has taken account of expected market evaluations of equity as well as the effect of long-term government bonds. These evaluations are suggestive of Tobin's q theory as well as Kahn's monetary theory. In contrast to the disparity of views between Keynes and Hicks in 1937, the analysis conducted by Kahn and Tobin in the 1950s and 1960s was set in a multi-asset portfolio context that exhibited a broader disagreement with regard to the influence of liquidity preference. Thus, although q is an important variable in Tobin's analysis, Kahn's introduction of the influence of liquidity premia of various assets in asset demand and the effect of portfolio flows in response to changes in relative liquidity preference across assets undermines the usefulness of this ratio. The implications of Kahn's monetary theory are developed in an analysis that presents them in terms of a comparable ratio to q. We find that there are circumstances in which the adjustment of monetary yields across assets and the underlying expectations reveal important information for the formation of monetary policy. In addition, the term structure of interest rates can convey substantial information when it deviates from historical averages and it should be considered separately from the q ratio. Moreover, if the assumptions associated with a monetary theory of interest and production are retained, the q ratio does not need to converge to unity in the long run.

Suggested Citation

  • Theodore T. Koutsobinas, 2012. "Portfolio Allocation, Liquidity-Preference and the q Ratio: A Reassessment of the Contributions of Tobin and Kahn," Review of Political Economy, Taylor & Francis Journals, vol. 24(1), pages 69-86, January.
  • Handle: RePEc:taf:revpoe:v:24:y:2012:i:1:p:69-86 DOI: 10.1080/09538259.2011.636608
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09538259.2011.636608
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Screpanti, Ernesto & Zamagni, Stefano, 2005. "An Outline of the History of Economic Thought," OUP Catalogue, Oxford University Press, edition 2, number 9780199279142.
    2. Allgoewer, Elisabeth, 2003. "Emil Lederer: Business Cycles, Crises, and Growth," Journal of the History of Economic Thought, Cambridge University Press, pages 327-348.
    3. Daniele Besomi, 2006. "'Marxism Gone Mad': Tugan-Baranovsky on crises, their possibility and their periodicity," Review of Political Economy, Taylor & Francis Journals, vol. 18(2), pages 147-171.
    4. Darity, William A, Jr & Horn, Bobbie L, 1985. "Rudolf Hilferding: The Dominion of Capitalism and the Dominion of Gold," American Economic Review, American Economic Association, pages 363-368.
    5. Colacchio, Giorgio, 2005. "On the origins of non-proportional economic dynamics: A note on Tugan-Baranowsky's traverse analysis," Structural Change and Economic Dynamics, Elsevier, vol. 16(4), pages 503-521, December.
    6. Gottfried Haberler, 1950. "Joseph Alois Schumpeter 1883–1950," The Quarterly Journal of Economics, Oxford University Press, vol. 64(3), pages 333-372.
    7. Michaelides, Panayotis G. & Milios, John G., 2005. "The Influence of the German Historical School on Schumpeter," MPRA Paper 74471, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:revpoe:v:24:y:2012:i:1:p:69-86. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/CRPE20 .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.