The Impact of the Tobin Tax in a Heterogeneous Agent Model of the Foreign Exchange Market
Authored by Filip Stanek, Jiri Kukacka
Date Published: 2018
DOI: 10.1007/s10614-017-9649-9
Sponsors:
No sponsors listed
Platforms:
NetLogo
Model Documentation:
Other Narrative
Mathematical description
Model Code URLs:
Model code not found
Abstract
We explore possible effects of a Tobin tax on exchange rate dynamics in
a heterogeneous agent model. To assess the impact of the Tobin tax in
this framework, we extend the model of De Grauwe and Grimaldi (Eur Econ
Rev 50(1):1-33, 2006) by including transaction costs and perform
numerical simulations. Motivated by the importance of the market
microstructure, we choose to model the market as being cleared by a
Walrasian auctioneer. This setting could more closely resemble the
two-layered structure of foreign exchanges at daily frequency than a
price impact function, which is often adopted in similar studies. We
find that the Tobin tax can deliver a moderate reduction of return
volatility and kurtosis. In addition, simulations indicate that the
Tobin tax reduces the degree of mispricing in the time series, which is
primarily achieved by eliminating long-lasting deviations from
fundamental value.
Tags
Agent-based modeling
behavior
Tobin tax
Financial market
Foreign exchange market
price impact
transaction taxes
Depth
Walrasian
auctioneer