This year’s Nobel
Thorsten Beck provides a great explanation of Bernanke, Diamond and Dydvig’s contribution to economics:
Their main contribution: showing the importance of the financial sector in deepening the Great Depression (Bernanke) and laying the theoretical foundation for the role of banks in the economy and explaining their fragility (Diamond and Dybvig). And while the models of the 1980s might seem simplistic from today’s viewpoint and we have gained much richer insights into credit cycles, systemic risk and the working of financial markets, it is the work the three laureates that started this literature.
A Nobel Prize for banking and finance
By: Thorsten Beck – European University Institute
Criticism of the Diamond-Dydvig model
The DD model presents a flawed model of banking: The DD bank does not transform the liquidity of the assets on the asset side of its balance sheet. Instead, it pays interest to depositors in T=1 before a return on the asset side has been generated. This built-in insolvency of the DD bank is the main cause for the instability of the DD bank, not the maturity transformation of bank assets.
A Nobel Award for the Wrong Model
By: Peter Bofinger, Thomas Haas – Würzburg University
What did Kindleberger think of Bernanke’s paper that got him the Nobel prize
In 1982 Ben Bernanke sent his paper that won him the Nobel Prize to Charles Kindleberger at MIT for comments. It’s an interesting vignette:
I think you have provided a most ingenious solution to a non-problem.
Bernanke v. Kindleberger: Which Credit Channel?
By: Perry G. Mehrling – Boston University
