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Title:Agent-based financial markets and New Keynesian macroeconomics: A synthesis PDF Logo
Authors:Lengnick, Matthias
Wohltmann, Hans-Werner
Issue Date:2011
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2011,09
Abstract:We combine a simple agent-based model of financial markets and a New Keynesian macroeconomic model with bounded rationality via two straightforward channels. The result is a macroeconomic model that allows for the endogenous development of business cycles and stock price bubbles. We show that market sentiments exert important influence on the macroeconomy. They introduce high volatility into impulse-response functions of macroeconomic variables and thus make the effect of a given shock hard to predict. We also analyze the impact of different financial transaction taxes (FTT, FAT, progressive FAT) and find that such taxes can be used to stabilize the economy and raise funds from the financial sector as a contribution to the costs produced by the recent crisis. Our results suggest that the FTT leads to higher tax revenues and better stabilization results then the FAT. However, the FTT might also create huge distortion if set too high, a threat which the FAT does not imply.
Subjects:Agent-based modeling
stock market
New Keynesian macroeconomics
financial transaction tax
financial activities tax
JEL:E0
E62
G01
G18
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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