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An increase in the IORR induces banks to boost their required reserve holdings by issuing additional deposits that, in turn, can be applied to increased retail loans, ceteris paribus.
The comparisons of relative coefficient magnitudes undertaken in the previous section thereby indicate that it is more likely that when σ 2 is considerably larger, ceteris paribus, than σ 2, it will follow that
In contrast, when σ 2 is considerably larger, ceteris paribus, than σ 2, the larger coefficient for
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