Unconventional monetary policies in an agent-based model with mark-to-market standards

Abstract

We employ an agent-based model to shed light on the macroeconomic effects of accounting principles, unconventional monetary policies, and of their possible interactions. If mark-to-market accounting standards may entail positive feedbacks which amplify economic or financial shocks, unconventional policies may introduce negative feedbacks that might dampen instabilities in financial and real markets. For these reasons, we jointly study these two sets of policies by employing a modified version of the Schumpeter meeting Keynes (K+S) macroeconomic agent-based model. Our results confirm that, due to its pro-cyclical nature, the mark-to-market accounting standard amplifies credit cycles, generating more instability with respect to a simulated economy wherein the historical accounting principle is employed. In contrast, unconventional monetary policy is counter-cyclical and it improves macroeconomic indicators. Finally, we study a scenario wherein mark-to-market accounting and unconventional monetary policy interact. We find that unconventional monetary policy can counterbalance the negative effects brought about by the application of mark-to-market accounting. Our results suggest that unconventional monetary policy instruments should not be considered as temporary interventions to be employed only during crisis periods. They should be part of the toolbox of central banks also in normal times.

Keywords: Accounting principles; Agent-based models; Mark-to-market; Unconventional monetary policy.

Fig. 1

Log-GDP time series for each Monte Carlo run displaying long-run trends with short-run business cycles

Fig. 2

GDP growth rate time series for each Monte Carlo run

Fig. 3

Monte Carlo pooled growth rate distribution (histogram) versus a normal distribution with equivalent mean and standard deviation (red kernel density)

Fig. 4

Dynamic auto-correlation of GDP (green) and dynamic cross-correlations between BP filtered (6,32,12) GDP and consumption (red) and between GDP and investment (blue). Shaded area indicates the min-max range

Fig. 5

Dynamic cross-correlation between BP filtered (6,32,12) GDP and outstanding private debt (green) and between GDP and deposits (red). Shaded area indicates the min-max range

Fig. 6

Dynamic auto-correlation of BP filtered (6,32,12) total private debt outstanding and dynamic cross-correlation between private debt outstanding and the total amount of bad debt (red). Shaded area indicates the min-max range

Fig. 7

Size distribution of all firms (upper panels) and size distribution of large firms in the log-log plane (lower panels). CG stands for consumption good, while KG for capital good

Fig. 8

Laplace fit (fitted lines) of the empirical (points) growth rate distributions of firms. CG stands for consumption good, while KG for capital good

Fig. 9

Productivity growth distributions. CG stands for consumption good, while KG for capital good

Fig. 10

Productivity persistence, as measured by the average auto-correlation function. CG stands for consumption good, while KG for capital good