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Title:A Heterogenous Agents Model Usable for the Analysis of Currency Transaction Taxes PDF Logo
Authors:Demary, Markus
Issue Date:2007
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2007,27
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.
Subjects:Currency Transaction Taxes
Exchange Rates
Financial Market Volatility
Heterogenous Agents Model
Numerical Simulation
JEL:G15
F32
F31
G18
C15
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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