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Economic Models - Convex Optimization

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52 Dipak R. Basu and Alexis Lazaridis<br />

market interest rate i.e.,<br />

RR ∗ t = a 13 + a 14 Y t + a 15 IR ∗ t .<br />

The commercial banks may adjust their actual reserve ratio to the<br />

desired reserve ratio with a lag.<br />

Thus, we can write<br />

RR t = α(RR ∗ t − RR t−1 )<br />

where 0

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