Mixture distribution hypothesis and the impact of a Tobin tax on exchange rate volatility: a reassessment

Olivier Damette

Post-Print from HAL

Abstract: This paper applies smooth transition regressions to incorporate nonlinearity into the impact of trading volume on exchange rate volatility, the so-called mixture distribution hypothesis (MDH). Linking this analysis to the Tobin tax debate, we provide the first empirical corroboration that such a tax may be effective in limiting speculation and reducing exchange rate volatility, especially in turbulent times. Our study points to two main results. First, we show that nonlinearities should be taken into account to explain the MDH. When volatility, spreads, and volume are simultaneously high, the relationship between trading volume and volatility tends to grow stronger and thus the MDH holds in turbulent periods. Second, on the assumption of constant trading volume elasticity, a Tobin tax would have been stabilizing and effective in the 2008 crisis.

Keywords: Tobin Tax; Exchange Rate Volatility; STR Models; Nonlinearity; Mixture Distribution Hypothesis (search for similar items in EconPapers)
Date: 2016
Note: View the original document on HAL open archive server: https://hal.science/hal-01601393v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Macroeconomic Dynamics, 2016, 20 (6), pp.1600-1622. ⟨10.1017/S1365100515000036⟩

Downloads: (external link)
https://hal.science/hal-01601393v1/document (application/pdf)

Related works:
Journal Article: MIXTURE DISTRIBUTION HYPOTHESIS AND THE IMPACT OF A TOBIN TAX ON EXCHANGE RATE VOLATILITY: A REASSESSMENT (2016)
Working Paper: Mixture distribution hypothesis and the impact of a Tobin tax on exhange rate volatility: a reassessment (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01601393

DOI: 10.1017/S1365100515000036

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().