Money supply mechanism and the interbank market in Colombia

Available from: 
October 2013
Paper author(s): 
Carmiña Vargas (Banco de la República)
Andrés M. Velasco (Banco de la República)
Luisa Silva (Banco de la República)
Camilo González (Banco de la República)
Topic: 
Macroeconomics - Economic growth - Monetary Policy
Year: 
2013


We set a dynamic stochastic model for the interbank daily market for funds in Colombia. The framework features exogenous requirement and requirement period, competitive trading among heterogeneous commercial banks, daily open market operations held by the Central Bank (auctions and window facilities), and idiosyncratic demand shocks and uncertainty in the daily auction. Analytical derivations of their decision making show that banks involvement in the interbank market and open market operations depend on their individual requirement constraint, daily assets, and supply and demand shocks. Equilibrium rates for the interbank market and the daily auction market are derived. The results highlight the importance of the institutional framework and the money supply mechanisms for the interbank market.

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Research section: 
Lacea 2013 annual meeting
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