the public's demand for money in cash or current bank accounts; money which is saved rather than spent or lent.
(1) A desire among some holders of financial instruments to keep some or all of their funds in liquid instruments, that is, instruments that either mature in a short period of time or that can be readily sold with small risk of loss. (2) A theory that attempts to explain the shape of yield curves. Under the liquidity preference hypothesis, the shape of yield curves is determined by the collective expectations of investors (the expectations hypothesis and implied forward rates) but with an upward bias at least for short- term rates caused by investors' preferences for liquidity.
The desire for investors, other things being equal, to hold liquid assets, i.e. cash, rather than bonds or stocks Within a single asset class, it describes an investors' preference for more marketable issues.
The increased willingness of investors to hold issues that are more liquid. In the Treasury market, where the shorter maturity issues are generally more liquid, the yield curve often has a rising (positive) shape due in part to liquidity preference.
A desire to remain in a state of liquidity.
A borrower, lessee or other financial debtor who is more interested in preserving the flexibility of its working capital than in minimizing interest charges (e.g. a party with a liquidity preference would rather avoid a down payment, retaining the extra working capital it represents than to reduce the total interest on the loan by making the down payment).
John Maynard Keynes developed the Liquidity Preference of Interest in the General Theory of Employment Interest and Money. The primary consideration of the liquidity preference is the demand for money as an asset, as a means for holding wealth. Interest rates, he argues, cannot be a reward for savings as such because, if a person hoards his savings in cash, he will receive no interest, although he has nevertheless, refrained from consuming all his current income.