speculative motive

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The component of the demand for money that arises from the aim of gaining from expected changes in interest rates. In Keynesian monetary theory such expectations are important. If it is believed that interest rates are likely to rise, and thus that bond prices are likely to fall, this makes bonds less and money more attractive to hold. This gives an incentive to sell bonds and hold money, or to defer buying bonds and hold on to money which would otherwise have been put into bonds to earn interest. Similarly, if interest rates are expected to fall, and bond prices to rise, this makes bonds more and money less attractive. This gives an incentive to reduce money holdings and buy bonds.

Subjects: Economics.

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