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Heterogeneous Traders and the Tobin Tax

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  • Frank Westerhoff

Abstract

To study the effectiveness of the Tobin tax, we develop a model of heterogeneous interacting agents. Traders either speculate on the basis of technical or fundamental analysis, or abstain from the market, a decision which depends on profit considerations, as well as communication between agents. Simulations generate stylized facts such as unit roots in exchange rates, fat tails for returns, or volatility clustering. The imposition of a Tobin tax leads to a crowding out of speculators and stabilizes the dynamics. However, the decreasing impact of fundamentalists triggers misalignments if tax rates are too high. Copyright Springer-Verlag Berlin Heidelberg 2003

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2002 with number 51.

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Date of creation: 01 Jul 2002
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Handle: RePEc:sce:scecf2:51

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Keywords: foreign exchange markets; Tobin tax; trading rules;

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