If the lower limit on cash balances rises by one dollar, the upper limit as speciﬁed by the Miller-Orr
model also rises one dollar.

Question

Quizplus · Accepted Answer

According to the Miller-Orr model, the upper limit on cash balances is determined by the sum of the target cash balance and twice the square root of the variance of net daily cash flows, while the lower limit is determined by the target cash balance minus the same value. Therefore, if the lower limit on cash balances rises by one dollar, it does not necessarily mean that the upper limit will rise as well.

If the Lower Limit on Cash Balances Rises by One