The growth of a narrow money index (M1) has remained significantly higher than the growth of broad money indices (M2, Lf) since the outbreak of the global financial crisis. This paper conducts an analysis on this phenomenon based on the demand for money. It introduces the motives giving rise to uncertainties in the real economy from Keynes' liquidity preference theory, divides the demand for money into three motives (transactions, speculative and precautionary motives), and examines the relation between money demand by motive and prices.

The estimation results of a money demand function with uncertainties in the real economy factored in have revealed that the signs of coefficients live up to theoretic expectations. The analysis of money demand by motive shows that a precautionary motive precedes a transactions motive. The analysis of the relation between the demand for money by motive and that by prices shows that transactions demand for money mainly has an impact on prices.

※ Please refer to the attached file.