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Speculation, Liquidity Preference, and Monetary Circulation

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  • Korkut A. Erturk

Abstract

The sharp exchanges that Keynes had with some of his critics on the loanable funds theory made it harder to appreciate the degree to which his thought was continuous with the tradition of monetary analysis that emanates from Wicksell, of which Keynes's A Treatise on Money was a part. In the aftermath of the General Theory (GT), many of Keynes's insights in the Treatise were lost or abandoned because they no longer fit easily in the truncated theoretical structure he adopted in his latter work. A part of Keynes's analysis in the Treatise which emphasized the importance of financial conditions and asset prices in determining firms' investment decisions was later revived by Minsky, but another part, about the way self-sustained biases in asset price expectations in financial markets exerted their influence over the business cycle, was mainly forgotten. This paper highlights Keynes's early insights on asset price speculation and its link to monetary circulation, at the risk perhaps, of downplaying the importance of the GT.

Suggested Citation

  • Korkut A. Erturk, 2006. "Speculation, Liquidity Preference, and Monetary Circulation," Economics Working Paper Archive wp_435, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_435
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    References listed on IDEAS

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    1. Peter Temin & Hans-Joachim Voth, 2004. "Riding the South Sea Bubble," American Economic Review, American Economic Association, pages 1654-1668.
    2. Robert Clower, 1999. "Post-Keynes Monetary and Financial Theory," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 21(3), pages 399-414, March.
    3. Korkut Erturk, 2003. "Asset Price Bubbles, Liquidity Preference and the Business Cycle," Working Paper Series, Department of Economics, University of Utah 2003_09, University of Utah, Department of Economics.
    4. Andrei Shleifer ad Robert W. Vishny, 1995. "The Limits of Arbitrage," Harvard Institute of Economic Research Working Papers 1725, Harvard - Institute of Economic Research.
    5. repec:hrv:faseco:33077905 is not listed on IDEAS
    6. J. M. Keynes, 1937. "The General Theory of Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 51(2), pages 209-223.
    7. Korkut A. Erturk, 2006. "Asset Price Bubbles, Liquidity Preference And The Business Cycle," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 239-256, May.
    8. Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990. "Speculative Dynamics," Working papers 544, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    10. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, pages 19-33.
    11. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    12. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar Publishing, number 474, September.
    13. Shleifer, Andrei & Vishny, Robert W, 1997. " The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
    14. Asimakopulos, A, 1983. "Kalecki and Keynes on Finance, Investment and Saving," Cambridge Journal of Economics, Oxford University Press, vol. 7(3-4), pages 221-233, September.
    15. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1991. "Speculative Dynamics," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 529-546.
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    Cited by:

    1. Daniel Detzer, 2012. "New instruments for banking regulation and monetary policy after the crisis," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(2), pages 233-254.
    2. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS, University of London, UK.

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