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A Heterogenous Agents Model Usable for the Analysis of Currency Transaction Taxes

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Demary, Markus

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Abstract

We extend the model by DeGrauwe and Grimaldi (2006, EER) by currency transaction taxes. This model explains the exchange rate behavior by the interaction of heterogeneous traders who display either trend chasing behavior or rely on a return of the exchange rate back to its arbitrage free fundamental value. Within this model framework we can show analytically that the steady-state of the original model is unaffected by the transaction tax rate. We inferred from numerical simulations that the transaction tax is able to reduce the number of speculative equilibria to zero. Moreover, we show that the tax will lead to a faster convergence of the system back to its fundamental steady state. --

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Publisher Info
Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,27.

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Date of creation: 2007
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Handle: RePEc:zbw:cauewp:6796

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: Currency Transaction Taxes; Exchange Rates; Financial Market Volatility; Heterogenous Agents Model; Numerical Simulation;

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F31 - International Economics - - International Finance - - - Foreign Exchange
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lux, T. & M. Marchesi, . "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
  2. Menkhoff, Lukas, 1997. "Examining the Use of Technical Currency Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 307-18, October. [Downloadable!] (restricted)
  3. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June. [Downloadable!] (restricted)
  4. Carl Chiarella & Xue-Zhong He, 2002. "An Adaptive Model on Asset Pricing and Wealth Dynamics with Heterogeneous Trading Strategies," Research Paper Series 84, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  5. De Grauwe, Paul & Grimaldi, Marianna, 2006. "Exchange rate puzzles: A tale of switching attractors," European Economic Review, Elsevier, vol. 50(1), pages 1-33, January. [Downloadable!] (restricted)
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