The Impact of the Tobin Tax in a Heterogeneous Agent Model of the Foreign Exchange Market

This is a pre-print of an article published in Computational Economics (2018). The final authenticated version is available online at DOI: doi.org/10.1007/s10614-017-9649-9

30 Pages Posted: 14 Aug 2015 Last revised: 21 Sep 2021

See all articles by Filip Stanek

Filip Stanek

Charles University in Prague - Institute of Economic Studies

Jiri Kukacka

Charles University - Institute of Economic Studies; Academy of Sciences of the Czech Republic

Date Written: June 1, 2016

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 fundamental value.

Keywords: Tobin Tax, Foreign Exchange Market, Agent Based Modeling, Walrasian Auctioneer

JEL Classification: C63, D84, F31, G18

Suggested Citation

Stanek, Filip and Kukacka, Jiri, The Impact of the Tobin Tax in a Heterogeneous Agent Model of the Foreign Exchange Market (June 1, 2016). This is a pre-print of an article published in Computational Economics (2018). The final authenticated version is available online at DOI: doi.org/10.1007/s10614-017-9649-9 , Available at SSRN: https://ssrn.com/abstract=2643369 or http://dx.doi.org/10.2139/ssrn.2643369

Filip Stanek

Charles University in Prague - Institute of Economic Studies ( email )

Opletalova 26
Praha 1, 11000
Czech Republic

Jiri Kukacka (Contact Author)

Charles University - Institute of Economic Studies ( email )

Opletalova 26
Prague 1, CZ-11000
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/contacts/people/58305408

Academy of Sciences of the Czech Republic ( email )

Pod Vodarenskou vezi 4
Prague 8, CZ-18200
Czech Republic

HOME PAGE: http://www.utia.cas.cz/people/kukacka

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