Interbank Interest-Rate Model for the Banking Business of a Multi-Industry Game

Abstract

Background. Even though banking undergirds all businesses of the modern economy, not much has been published about how the banking business should be simulated in a business game. A model of the interbank interest-rate market is useful for multi-industry games that includes the banking business, but such a model has not be described in the extant literature.

Aim. Our aim is to present a spliced model of the interbank interest-rate market that is derived from the nature of the modern banking system, and to show how the model is used in a game that gives participants practice in executing strategic business decisions and setting national monetary policies.

Method. Mathematics based on equilibrium arguments is used to formulate the model.

Argument. The interbank interest rate can be derived for three conditions depending on the relationship between aggregated loan requirements and aggregated loanable funds. The derived curves meet smoothly at a single splice point.

Conclusion. The spliced model should be useful in any multi-industry game that includes the banking business.