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Revision:Post-Keynesian Modifications to the Demand for Money

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TSR Wiki > Study Help > Subjects and Revision > Revision Notes > Economics > Post-Keynesian Modifications to the Demand for Money

In many respects, question usefulness of distinguishing Transactions demand from Asset demand for cash as separate components in total MD

  1. Baumol & the Interest Rate Sensitivity of Transactions Demands: Baumol (1952) implies that transactions demand for cash will respond inversely to interest rate changes (ceteris paribus: reinforces i. rate sensitivity of total MD). (Opportunity cost in i. foregone of cash balance but balanced vs costs of i. yielding assets liquidation costs/inconvenience indiv will seek to minimise these total costs.) So higher i. rate decrease transactions demand for cash & vice-versa. + Note: If the act of liquidation costless, there would be no demand for transactions balances (intuitively appealing)
  1. Tobin (1958) & the Keynesian Asset Demand for Cash: reformulation of Keynesian demand for money to meet obj. that indivs’ll often hold speculative balances & financial assets. Allows it.

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