People demand money for different reasons. The asset motive states that people demand money as a way to hold wealth. In a period of inflation,the value of money declines and therefore there is unlikely to be an asset motive for money. However, in a period of deflation, money increases in value and therefore there may be a significant asset motive for demanding money.
There may also be an asset motive for money if speculators think that the value of assets such as bonds are going to fall. By holding money they will be able to buy cheaper bonds in the future.
Here money is used as a temporary way of storing wealth.
Asset motive for money can be explained using further models:
- Speculative demand – Keynesian view of choosing between holding cash and buying bonds
- Portfolio demand – Tobin model which states people choose between safe cash and risky investments.
Related