Abstract: This paper researches on Tobin Tax's effect on decreasing foreign exchange volatility with a NK-DSGE model containing the elements of Tobin Tax and foreign exchange by designing three different Tobin Tax rules under seven conditions.The results suggest that a proper Tobin Tax policy can contribute to resisting external risks of foreign exchange rate while an improper one is just the opposite.We find a well-designed rule should try to diminish government intervention through comparing different effects of Tobin Tax rules.Furthermore,our simulation results partly confirm the conclusion of some scholars that in Impossible Trinity theory,an internal or border policy is more likely better than a corner one.Seen from the outcomes of simulation analysis,neither in the condition of completely free capital flows nor in the strict capital controls can the exchange rate stability effect be optimal.An optimal Tobin Tax policy rule should be somewhere between strict capital controls and completely free capital flows policy.

Key words: Tobin Tax Foreign Exchange Stability NKDSGE Models Bayesian Estimation

JEL Classification: F31 H21 jBAyqS59bIJ4dE9g43mOi8UiTDEfDf9lrDnKOb4+oh5mS4PIBIzPgekaYL2kL2Fl