Davies and Green, two seasoned veterans of the United Kingdom's Financial Services Authority and the Bank of England, review the 2007-8 financial crisis -- and its antecedents -- for lessons in how central banks should be organized, what responsibilities they should be given, and how they should pursue those responsibilities. Not surprisingly, they find that central banks should assume more responsibility for the stability of the financial system, and they are inclined to favor inflation targeting as one method of their doing so. Discussing at length the merits and difficulties involved when central banks adopt a more supervisory role, the book contains noteworthy chapters on the special problems of central banking within Europe and in emerging-market countries, where financial systems are less well developed. Disappointingly, the authors devote little space to the challenges that large and potentially volatile international movements of capital pose for central banks.
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