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,...