Determinants of the Interbank Interest Rate and the Importance of Variability in Its Estimation

This article examines the determinants of the interbank interest rate in Peru, with a special emphasis on the variability of this rate as a key factor in its estimation. The study addresses the importance of the interbank rate for monetary policy and the seasonal behavior of liquidity in the Peruvian financial system during the period from January 1996 to March 1997. Using an ARCH time-series model, both the mean and the variance of the interbank rate are analyzed, revealing that volatility is a significant component in determining its behavior. The results indicate that the interest rate responds to supply and demand factors, as well as to banks’ perception of risk. Additionally, the study finds that the effects of shocks on variance are asymmetric and persistent, suggesting that bad news has a greater impact on the rate. The implications of these findings suggest that incorporating variability into monetary policy can improve the effectiveness of liquidity management and the stability of the interbank rate. (Abstract and audio: Department of Economic Publications)