Assessing the Effects of Quantitative Easing Policies on Asset Prices and Market Liquidity Across Economies

Posted: Apr 13, 2018

• Liam Thompson
• Luna Baker
• Luna Nguyen

Abstract

Quantitative easing has emerged as a dominant monetary policy tool since the global financial crisis, yet our understanding of its cross-border transmission mechanisms remains incomplete. Traditional economic models have struggled to capture the complex, nonlinear relationships between central bank balance sheet expansion and financial market outcomes across different economic contexts. This research addresses this gap by developing a novel computational framework that moves beyond conventional econometric approaches to model QE effects through an agent-based simulation paradigm. The limitations of existing literature stem from their reliance on linear assumptions, aggregate data, and isolated market analyses. These approaches fail to account for the emergent properties that arise from heterogeneous agent interactions, cross-market spillovers, and institutional differences across economies. Our research introduces a multi-agent reinforcement learning system that simulates the adaptive behavior of market participants—including institutional investors, retail traders, and market makers—across developed, emerging, and frontier markets. Our primary research questions investigate how QE policies generate differential effects on asset prices and market liquidity depending on economic development stage, financial market structure, and institutional context. We examine whether there exist threshold effects in QE implementation beyond which additional balance sheet expansion yields diminishing returns. Furthermore, we explore the phenomenon of cross-market liquidity migration and its implications for global financial stability. The novelty of our approach lies in integrating computational finance techniques with monetary economics to create a more realistic simulation of QE transmission mechanisms. By modeling agent learning and adaptation, we capture how market participants update their strategies in response to unconventional monetary policies, leading to emergent market dynamics that cannot be derived from representative agent models.