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Who Does a Currency Transaction Tax Harm More: Short-Term Speculators or Long-Term Investors?

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  • Markus Demary

    ()
    (Universitaet Kiel)

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    Abstract

    We propose a novel heterogeneous interacting agents model in which traders are allowed to select endogenously between two different forecasting models and are moreover allowed to be short-term speculators or long-term investors. Within this model framework we study the effects of currency transaction taxes on exchange rate volatility and traders’ behavior measured by their population fractions. The numerical analysis yields the result that these taxes reduce the variance of exchange rate returns, but increase that kurtosis. Moreover it does not lead to a reduction in the misalignment. The second result is, the tax harms short-term speculation in favor or long-term investments, while it also harms trading rules based on economic fundamentals in favor to trend-extrapolating trading rules. But these results are only valid if agents trade very aggressively. Otherwise taxation is not necessary.

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    Bibliographic Info

    Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

    Volume (Year): 228 (2008)
    Issue (Month): 2+3 (June)
    Pages: 228-250

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    Handle: RePEc:jns:jbstat:v:228:y:2008:i:2-3:p:228-250

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    Related research

    Keywords: Currency transaction taxes; financial market volatility; foreign exchange markets; heterogeneous interacting agents;

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    Cited by:
    1. Blake LeBaron & Peter Winker, 2008. "Introduction to the Special Issue on Agent-Based Models for Economic Policy Advice," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(2+3), pages 141-148, June.
    2. Olivier Damette & Stéphane Goutte, 2014. "Tobin tax and trading volume tightening: a reassessment," Working Papers halshs-00926805, HAL.
    3. Matthias Lengnick & Hans-Werner Wohltmann, 2013. "Agent-based financial markets and New Keynesian macroeconomics: a synthesis," Journal of Economic Interaction and Coordination, Springer, vol. 8(1), pages 1-32, April.
    4. Frank H. Westerhoff, 2008. "The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(2+3), pages 195-227, June.
    5. Poledna, Sebastian & Thurner, Stefan & Farmer, J. Doyne & Geanakoplos, John, 2014. "Leverage-induced systemic risk under Basle II and other credit risk policies," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 199-212.

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