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...

We propose a metric of financial stability that is a weighted average of the probability of default and the equity of each country. The weights are obtained in the VAR and must reflect that the welfare changes due to financial instability are produced primarily through changes of the probability...

Liquidity and solvency are the heavenly twins of banking, frequently indistinguishable. An illiquid bank can rapidly become insolvent, and an insolvent bank illiquid. As Tim Congdon noted, (FT, September 2007), in the 1950s liquid assets were typically 30 percent of British clearing banks’...

When the public sector of a country becomes so indebted that its fi scal sustainability is potentially at risk, then monetary policy has to be, perforce, closely integrated with debt management and fiscal policy. This was the case in the United Kingdom in the decades after World War II. By the...

Both the euro-area and the United States suffered an initially quite similar housing and financial shock in 2007/8, with several states in both regions being particularly badly affected. Yet there was never any question that the worst hit US states would need a special bail-out or leave the...

Besides the theoretical (Alchian/Klein, 1973) case for including asset prices in measures of inflation, there is also a practical case, that some asset prices, notably housing, are closely associated with the main trends in inflation, and via 'bubbles and busts' with output disturbances....

In the twenty years since the Cultural Revolution, China has maintained fast real growth. This occurred despite China having similar problems to other transitional economies, e.g. loss-making State Owned Enterprises (SOEs), eroding fiscal revenues and inflation, (Section 3). Although China...

At the start of the tapering process in the United States, it is necessary to anticipate what instruments may be used in the next phase. This note makes a strong case for preventive use of macroprudential tools to complement the Basel III buffer approach along the credit cycle. Instruments need...