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

Markus Demary

No 2007-27, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

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.

Keywords: Currency Transaction Taxes; Exchange Rates; Financial Market Volatility; Heterogenous Agents Model; Numerical Simulation (search for similar items in EconPapers)
JEL-codes: C15 F31 F32 G15 G18 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-cmp and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:6796

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