Financial Regulation and Stability
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Financial Regulation and Stability

Lessons from the Global Financial Crisis

Charles Goodhart and Dimitrios P. Tsomocos

This book addresses the interaction of monetary and regulatory policy to achieve the important goal of price and financial stability. The authors show how financial stability can be assessed and measured continuously, and discuss the interrelationships between liquidity and default. Without default there would be no concern about liquidity. But the financial crisis was not just a liquidity problem, and requires a general equilibrium model. Their general equilibrium analysis demonstrates how policy should depend on understanding all the relevant factors.
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Chapter 11: Global Imbalances and Taxing Capital Flows

Charles A.E. Goodhart, M. Udara Peiris and Dimitrios P. Tsomocos

Abstract

We study a monetary economy with two large open economies displaying net real and financial flows. If default on cross-border loans is possible, taxing financial flows can reduce its negative consequences. In doing so it can improve welfare unilaterally, in some cases in a Pareto sense, via altering the terms of trade and reducing the costs of such default.

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