Arbeitspapier

Agent-based financial markets and New Keynesian macroeconomics: A synthesis

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.

Language
Englisch

Bibliographic citation
Series: Economics Working Paper ; No. 2011-09

Classification
Wirtschaft
Fiscal Policy
Financial Crises
General Financial Markets: Government Policy and Regulation
Subject
Agent-based modeling
stock market
New Keynesian macroeconomics
financial transaction tax
financial activities tax

Event
Geistige Schöpfung
(who)
Lengnick, Matthias
Wohltmann, Hans-Werner
Event
Veröffentlichung
(who)
Kiel University, Department of Economics
(where)
Kiel
(when)
2011

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Lengnick, Matthias
  • Wohltmann, Hans-Werner
  • Kiel University, Department of Economics

Time of origin

  • 2011

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