The Impact of the Tobin Tax in a Heterogeneous Agent Model of the Foreign Exchange Market
| Author: | Bc. Filip Staněk |
|---|---|
| Year: | 2014 - summer |
| Leaders: | PhDr. Jiří Kukačka Ph.D. |
| Consultants: | |
| Work type: | Bachelors |
| Language: | English |
| Pages: | 52 |
| Awards and prizes: | B.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance and for an extraordinarily good bachelors diploma thesis. |
| Link: | https://is.cuni.cz/webapps/zzp/detail/137315/ |
| Abstract: | In this thesis, we assess the impact of the Tobin tax on key statistics of exchange rate returns with use of a heterogeneous agent based model. The answer to the question of how transaction costs a ect exchange rate dynamics is not only interesting from a theoretical point of view but also has practical implications as several regulators are contemplating imposition of such a tax nowadays. Motivated by the recent research showing the great importance of the mar- ket micro structure, we choose to explore the impact of the tax in a market cleared by the Walrasian auctioneer. This settings, as we argue, could resem- ble the two layered structure of the real foreign exchanges more closely than a price impact function which is often adopted in studies regarding the Tobin tax. To assess the impact of the tax, we extend the model of De Grauwe & Grimaldi (2004) by the inclusion of transaction costs. The original model con- sists of boundedly rational agents who use a blend of fundamental and technical analysis to predict the future exchange rate. An ongoing competition between the forecasting rules creates chaotic price movements not dissimilar to the ones observed in the real foreign exchanges. We use computational methods to assess the e ect of the Tobin tax within the model and nd that the Tobin tax is capable of reducing distortions and kurtosis of returns. The e ect of the tax on volatility is more intricate. We found that for small values of the tax (0%{0.3%) it negligible increases volatility while for larger values (0.3%{1%) the tax can deliver a decrease of volatility by up to 10% in the case of a 1% tax. Results are robust with respect to the volatility of the fundamental value. In addition, our simulations indicate that the Tobin tax is able to prevent from occurrence of speculative bubbles. |
