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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

Suggested Citation

  • Frank Westerhoff, 2003. "Heterogeneous traders and the Tobin tax," Journal of Evolutionary Economics, Springer, vol. 13(1), pages 53-70, February.
  • Handle: RePEc:spr:joevec:v:13:y:2003:i:1:p:53-70 DOI: 10.1007/s00191-003-0140-5
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    Keywords

    Key words: Foreign exchange markets – Tobin tax – Technical and fundamental analysis; JEL Classification: F31; G14;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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