Publication detail

The impact of the Tobin tax in a heterogeneous agent model of the foreign exchange market

Author(s): PhDr. Jiří Kukačka Ph.D., Filip Staněk
Type: IES Working Papers
Year: 2015
Number: 26
ISSN / ISBN:
Published in: IES Working Papers 26/2015, published in COMPUT ECON
Publishing place: Prague
Keywords: Tobin tax, foreign exchange market, agent-based modeling, Walrasian auctioneer
JEL codes: C63, D84, F31, G18
Suggested Citation:
Grants: DYME – Dynamic Models in Economics GAUK 588912 - Empirical Validation of Heterogeneous Agent Models SVV 260 233 - Intensification of Doctoral Research in Economics and Finance: Heterogeneity in Alternative Approaches to Economic Modeling
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 (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 the fundamental value.
Downloadable: wp_2015_26_stanek_kukacka

Partners

Deloitte

Sponsors

CRIF
McKinsey
Patria Finance