Balance-Sheet Based and Unconventional Policies in an Agent-Based Model

In this paper we shed more light about the interactions between accounting policies and unconventional monetary policies. By employing a modified version of the Schumpeter meeting Keynes Agent-Based model (KS model) we study the effects that Mark-to-Market (MtM) accounting standards might have in terms of financial stability, economic growth and sustainability of public finances. We also study the effects of Quantitative Easing (QE), modeled as the intervention of the central bank for the clearing of bad-debts accumulated by the financial institutions. Our results suggest that the Mark-to-Market standard might generate instability in the credit side of the economy because of its pro-cyclical nature; the QE instead, being counter-cyclical might counteract the negative effects. However, a QE policy alone, does not outperform a baseline scenario with historical accounting standards and without unconventional monetary policies, suggesting that QE might be useful to counteract peculiar crisis events but shall not become a conventional instrument to be employed at any occasion.