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Unconventional monetary policies in an agent-based model with mark-to-market standards
Mattia Guerini1,2,3, Francesco Lamperti3,4,5, Mauro Napoletano2,3,6,7
1Department of Economics and Management, University of Brescia, Brescia, Italy.
Review of Evolutionary Political Economy
|April 16, 2024
Summary
Mark-to-market accounting amplifies economic instability, while unconventional monetary policy stabilizes markets. Their interaction shows policy can mitigate accounting
Area of Science:
- Macroeconomics
- Financial Economics
- Computational Economics
Background:
- Accounting principles significantly influence economic stability.
- Unconventional monetary policies (UMP) are increasingly utilized by central banks.
- The interaction between accounting standards and UMP requires further investigation.
Purpose of the Study:
- To analyze the macroeconomic effects of mark-to-market (MTM) accounting and UMP.
- To investigate the interaction effects between MTM accounting and UMP.
- To assess the role of UMP in mitigating financial and real market instabilities.
Main Methods:
- Agent-based modeling (ABM) approach.
- Utilized a modified Schumpeter meeting Keynes (K+S) macroeconomic ABM.
- Simulated scenarios comparing historical accounting, MTM accounting, and UMP interventions.
Main Results:
- MTM accounting exhibits pro-cyclical behavior, amplifying credit cycles and economic instability.
- UMP demonstrates counter-cyclical properties, improving macroeconomic indicators.
- The interaction reveals UMP can effectively counterbalance the destabilizing effects of MTM accounting.
Conclusions:
- MTM accounting exacerbates economic and financial cycles.
- UMP acts as a stabilizing force in the economy.
- UMP should be integrated into central bank toolkits for normal times, not just crisis periods.
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