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Google the term "liquidity preference". It's generally understood to be a function of real GDP and interest rates. GDP up = more demand for currency to be able
by eldavido 6y ago
Google the term "liquidity preference". It's generally understood to be a function of real GDP and interest rates. GDP up = more demand for currency to be able to transact. Lower rates = holding cash has less opportunity cost (there are fewer opportunities to invest in other things with higher yield).
- alexpetralia 6y agoThis appears to be a theoretical term. Is there any empirical chart that demonstrates this, or more generally, "money demand"?
- zwaps 6y agoThere is no non theoretical way to measure demand and supply separately from market data. All prices, for example, already include not only costs, but expectations of demand. You need data that includes so called demand shifters or demand multipliers, to estimate the supply and vice versa. That is, if you observe a supply independent shift of demand, you can use that measure of to identify supply parameters. Even if you di this non parametrically, you implicitly impose a model. Supply and demand is one of the origin problems of the theory of statistical identification and causal analysis.