| Tobin Tax was suggested by Nobel Memorial Prize in Economic Sciences Laureate James Tobin,who held the view that a small rate of tax on foreign exchanges transition would decrease market volatility.It is generally taken as a kind of capital controls,yet a policy instrument more closely linked to market.Comparatively speaking,a Tobin Tax has less negative effect on market confidence and domestic economy than capital controls.After the US subprime mortgage crisis in 2007 and the European sovereign debt crisis in 2011,more and more countries began to attach importance to the systemic risk problem of the financial system.As a result,Tobin Tax emerges as a focus once again,and many countries including China are planning to implement a Tobin Tax policy.Some Tobin Tax policies were quite effective in application maintained by several countries.However,there has long been many different views on its basic theories.One primary argument is that whether a Tobin Tax can contribute to market stabilization.In this dissertation,I firstly built a New Keynesian DSGE model with referring to Escude(2015)’s work.Subsequently under the same framework,I designed seven models including three different Tobin Tax rules to research on Tobin Tax’s effect on decreasing market volatility.In the step of calibration,I used a couple of methods,such as Vector Error Correction model,literature and empirical calibration,and Bayesian estimation method,to calibrate a baseline model.Then the results are applied in all seven models to make their following comparisons available.In this research,I attach more importance on analysis of the baseline model and comparisons among all 7 models,with particular emphasis on variables related to foreign exchange market volatility.The results of simulation analysis based on DSGE models shows that foreign exchange market is differently affected by foreign exchange risks and foreign interest rate shock.The former has more short term effect,and the latter is more significant in long run.Also,I find different Tobin Tax rules will have various results in foreign exchange volatility.A more marketized Tobin Tax is better than a strict one.Furthermore,I find an optimal Tobin Tax policy rule should be somewhere between strict capital controls and completely free capital flows policy.This result confirms the conclusion of some scholars that in Impossible Trinity theory,an internal or border policy is more likely better than a corner one.The conclusion of this dissertation suggests that a well-designed Tobin Tax rule can help to decrease foreign exchange market volatility and enhance the stability of market when facing external risks.Also,according to simulation analysis results,an optimal Tobin Tax policy should have more characters of marketization rather than government controls. |
