Goodhart, Charles A.E. and Tsomocos, Dimitros P.: The challenge of financial stability: a new model and its applications

TL;DR

This paper reviews a new model for financial stability focusing on strategic bank defaults and credit chains, emphasizing its potential for advancing theoretical and practical understanding of systemic risk.

Contribution

It introduces a novel framework modeling strategic partial defaults and credit chains, offering new insights into financial stability analysis.

Findings

Highlights the potential of the model for further research

Emphasizes importance of credit chain dynamics in stability

Suggests applications in systemic risk assessment

Abstract

This review of the book "The Challenge of Financial Stability: A New Model and its Applications" by Goodhart C.A.E. and Tsomocos D.P. highlights the potential of the framework of strategic partial default of banks with credit chain on the interbank market for further theoretical and applied research on financial stability.