The aim of this paper is to provide both a satisfactory econometric representation of the dynamics of the 3-month Pibor interest rate over the 1987-1991 period, and a theoretical justification grounded in the behaviour of the interbank market's participants. Our results cast doubt on the validity of the often used Orstein-Uhlenbeck process as an appropriate model describing the dynamics of French short term rates. Our data actually fits an AR (2) process. We also provide evidence of ARCH (1) effects in the residuals.
AFTALION, F. and PONCET, P. (1995). La dynamique des taux d'intérêt à court terme en France. Bankers, Markets and Investors, pp. 5-16.