Speculative demand for money-what is speculative demand for money?
People to avoid future market interest rates and stock market price of uncertainty caused by the loss of assets or assets surplus to increase the overflow, adjust the capital structure by seeking investment opportunities in the formation of the demand for money. The concept of speculative demand for money is a British economist JM Keynes first proposed. The public for its temporary assets, you can use money in the form, the form of securities can also be used to save. In addition to the necessary trading (including preventive) currency holdings, the choice of the remaining assets are held, people focus from the fight for the principle of profit or loss avoided to be sure.
Speculative demand for money - the current analysisWhen the current interest rate is too high, people expect interest rates to fall, they give up the money and bond holdings, which reduce the demand for money, not only to obtain a higher bond yields, and when interest rates fall after the bond will rise due to additional capital surplus overflow. When the current low interest rates, people expect interest rates to rebound, they give up the bond money is held, an increase of currency requirements, this can minimize the risk of loss and gain. Therefore, the speculative demand for money is the inverse function of interest rates, with the level of interest rates was the opposite direction. To L3 speculative demand for money on behalf of, i on behalf of the interest rate level, the functional can be expressed as:
Speculative demand for money and there may be two extreme forms: ① When the high interest rates to a certain limit, the speculative demand for money is zero, it is believed that interest rates can not be non-drop, bond prices will fall even lower, and the current high interest rates will offset any possible loss of assets, then, no one is willing to hold bonds. ② When low interest rates to a certain limit speculative demand for money will be infinite, it is not that lower and lower interest rates, bond prices will not increase, then, were only willing to hold any currency. If you leave the bonds, interest rates will have to suffer the loss of assets, and therefore, in the interest rate, no matter how much the money supply will be absorbed, monetary policy ineffective. This is Keynes's liquidity preference theory.
Keynes's speculative demand for money raised and analyzed in the speculative demand for money, considered the main alternative asset is risky bonds and risk-free money. American economist J. Tobin made a choice of assets to this theory, and with multi-asset investments to avoid risk-taking behavior was further explanation. Tobin suggested that in order to avoid the risk that people will be in safe assets, money and risk assets, profitability, assets to choose between the three, according to the benefits and risks of various assets to determine the comparative structure of its assets. Optimal capital structure should be the asset structure of the marginal revenue equals marginal cost (risk). Tobin from those holding money (investors) to avoid the risk of motivation leads to speculative demand for money and the inverse relationship between interest rates. Keynes's theory focuses on liquidity and liquidity is not entirely the choice between the results of more single choice (money or bonds). Tobin's theory focuses on the benefits and risk of a balanced, more diverse selection results are more realistic, therefore, Tobin's asset choice theory is the liquidity preference theory of improvement and development.
Speculative demand for money - StabilityMarket speculation activities Keynesian school of thought, the public demand for money (ie, liquidity preference) from the transaction motive, motive and speculative motive caution. Which, by careful trading and money demand generated by the main motivation for the purchase and payment, the interest rate elasticity of demand for such little money, roughly the same income as a part of. Motivated by speculative demand for money arising from the public are included in the monetary and financial asset portfolio between the process of such currency arises from the uncertainty of the future direction of interest rates, the corresponding demand for money depends on the prevailing interest rates and expected the relationship between future interest rates, financial markets, "long" and "short" the expected function. It is because of the existence of expected future interest rate factors, speculative demand elasticity of volatile interest rates, which means that money demand and the relationship between the interest rate is unstable, and lead to speculative demand for money function is unstable of. As the speculative demand for money is the total demand for money is an important part, so the total money demand is unstable. This is the total demand in the economy, prices and output has led to great uncertainty, but also can cause investors to make changes in monetary policy is expected to have a considerable risk. Thus, the Keynesian money demand function based on the instability made it clear that the policy of national economic stability is the main fiscal policy rather than monetary policy.
Monetarist school more detailed analysis of the impact of the size of the demand for money and opportunity cost variables. In their view, the main variable is the size of the total wealth, total wealth can be divided into non-human wealth and human wealth; opportunity cost variables include the expected rate of return their money, the stock is expected to yield, bond yields are expected, the expected inflation rate. The factors affecting the demand for money is more complex. However, to simplify the analysis, they will simplify the above factors and the market interest rate for the permanent income, and in the empirical analysis found the income elasticity of money demand is close to 1, the interest rate elasticity is close to zero, so the variable of money demand relationship is stable. Friedman is clear that the money demand function is highly stable, in his "restatement of the quantity of money that" the article said "money demand function is highly stable", where the stability is "currency demand and the decision This demand is a function of the various relationships between variables and stability. " Friedman further asserted that the money demand functions are more stable than even the consumption function. Friedman's assertion means that the stability of monetary policy on the economy has a huge impact. Monetarist school of Brenner and Melzer in the 1960s, the study found that money demand function is stable in the long term, whether to take a narrow or broad definition of money, but also "whether the system aspects, social aspects and political changes in how the money demand function are very stable "; Godwin Rumsfeld after World War II to 1974 using data to make empirical research to support the stability of money demand function with the conclusions of .
To the early 1960s, the Keynesian doctrine has been largely recognized currency of the study conclusions. On the stability of money demand function almost become a recognized fact that when, from 1974 onwards, the demand for money function began to forecast the demand for money in the serious mistakes. "In the United States, the 1970s seems to be a money demand function down, but 80 years is the opposite in the 20th century, 30 years, 70-90 years, real money holdings significantly deviated from the majority of the money demand estimates model predictions in the circulation speed, M1 flow velocity in the improvement of the 1970s and 1980s did not decrease predicted by these models. "Goldsmith Field performance of the money demand function, said the instability for the "missing money" puzzle that, according to the forecast money demand function of money demand far exceeds the actual amount of money held by the public.
Speculative demand for money - a function variable
Speculative demand for money to solve the "missing money" puzzle, the International Monetary economists on the one hand is an issue in the measurement technology, such as building a part of the adjustment model and error correction model, dummy variables for the design, the use of points, etc.; in the function form from linear to log-linear and semi log-linear, or switch to a non-linear function or nonlinear function with random coefficients, or using transcendental functions and so on. Hope this speculative demand for money function to establish the stability and predictability. More exploration is speculative in theory, to reconsider the contents of the money demand function with variable manifestations. For example, for the dependent variable to switch to the broad (M2, M3) and even re-weighted monetary aggregates (tretinoin West of the total) to replace the narrow and simple sum monetary aggregate as the dependent variable; for the scale variable, introduction of a critical value, the concept of buffer stocks and other speculative demand for money to explain the instability; also include the use of current income, permanent income, wage income or property income as scale variable; for the opportunity cost variable, in addition to its own rate of return money real wage rates, exchange rates and other items of foreign interest rates, and the use of short-term rates, long-term interest rates, inflation rates, or a composite index as interest rate variables, also the interdependence of the various assets and the cost of a variety of more accurate calculation of a big fuss.