The tendency of economic agents to hold cash and demand deposits instead of buying interest-bearing securities. In economics, this behavior is explained in various models with varying degrees of conviction. Empirical studies, however, have clearly shown (a number of empirical studies have shown unequivocally) that the strength of an existing liquidity preference is determined by – certain current economic, social and political variables and – expectations. In any case, it cannot be explained monocausally, for only one reason. – The statement that all investors would prefer short-term commitments. Whoever offers other securities must grant an advantage – ultimately a higher interest rate – in order to attract investors (all investors prefer short-term securities; any longerdated security, therefore, will necessitate paying a premium to investors buying it). Whether this explanation (preferred habitat theory) correctly reflects the actual behavior of investors is disputed. – See wait-and-see attitude, attentism, expectations, contingent cash, money utility, idle money, real estate funds, open, liquidity forms, liquidity premium, minimum estimate of future needs, reserve base, transaction cash, interest rate theories. – Cf. ECB Monthly Bulletin, September 2006, pp. 44 ff. (Increase in liquidity preference among firms and its causes; with overviews. P. 44: References to further reading), Deutsche Bundesbank Monthly Report of July 2007, pp. 16 f. (higher liquidity preference leads to higher cash ratio), ECB Monthly Report of March 2008, pp. 54 ff. (increase in highly liquid assets at companies explained empirically and in detail; eight explanatory overviews).
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