Shi, Kang; Xu, Juanyi - In: Canadian Journal of Economics 42 (2009) 4, pp. 1501-1526
Two types of policy have been proposed to eliminate noise trading in the foreign exchange market: increasing the entry … cost or imposing a `Tobin tax' type of transaction tax. In this paper, we endogenize entry decisions of both informed … traders and noise traders and show that these policies may be ineffective in reducing exchange rate volatility. This is …