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The Challenge of Financial Stability: a new model and its applications

Charles Goodhart and Dimitrios Tsomocos
Edward Elgar Publishing (2012) 

The achievement of financial stability is one of the most pressing issues today. This timely and innovative book provides an analytical framework to assess financial (in)stability as an equilibrium phenomenon compatible with the orderly functioning of a modern market economy.

The authors expertly show how good regulatory policy can be implemented and that its effects on the real as well as the nominal side of the economy can be properly analysed. The core of their approach is to take realistic account of the interaction between endogenous default, agent heterogeneity and money and liquidity, and suggest how a quantifiable metric of financial fragility could be developed.

This insightful book will serve as a basis for future work on financial stability management for both academics and policy-makers and provide guidance on how to undertake crisis prevention and resolution.

  • Professor Charles Goodhart is an emeritus professor of banking and finance and a member of the Financial Markets Group at LSE.

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The Challenge of Financial Stability