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AKSOE: Physik sozio-ökonomischer Systeme
AKSOE 14: Financial Markets and Risk Management II
AKSOE 14.3: Talk
Wednesday, March 9, 2005, 15:00–15:30, TU P-N203
Tobin Tax and market depth — •Gudrun Ehrenstein1,2, Diettrich Stauffer1, and Frank Westerhoff3 — 1Institute for Theoretical Physics , Cologne University — 2School of Engineering and Science, International University of Bremen — 3Department of Economics, University of Osnabrück
This paper investigates - on the basis of the Cont-Bouchaud model - whether a Tobin tax can stabilize foreign exchange markets. Compared to earlier studies, this paper explicitly recognizes that a transaction tax-induced reduction in market depth may increase the price responsiveness of a given order. We find that the imposition of a transaction tax may still achieve a triple dividend: (1) exchange rate fluctuations decrease, (2) currencies are less mispriced, and (3) central authorities raise substantial tax revenues. However, if the price impact function is too sensitive with respect to market depth, stabilization may turn into destabilization.