1:30 u Rul 64 Problem set 1: Solve commercial bank's decision problem Bank reserve balances are stochastic and equal to: End-of-day reserves = T + E where T is the expected value that the comm. bank must decide, and e is a zero-mean random variable with continuous distribution function F The realization of occurs after the interbank market closes. - There are opportunity costs for holding too high or too low Reserves Consider the decision of a bank about its expected reserve holdings T The bank must choose T to minimize expected costs subject to the probability distribution of a 1:30 u Rul 64 Problem set 1: Solve commercial bank's decision problem Bank reserve balances are stochastic and equal to: End-of-day reserves = T + E where T is the expected value that the comm. bank must decide, and e is a zero-mean random variable with continuous distribution function F The realization of occurs after the interbank market closes. - There are opportunity costs for holding too high or too low Reserves Consider the decision of a bank about its expected reserve holdings T The bank must choose T to minimize expected costs subject to the probability distribution of a