The Nobel Prize in Economics for the year 2022 is given to Ben S. Bernanke, Douglas W. Diamond & Philip H. Dybvig. They are awarded the prize for their research work on “banks and financial crises”. Their work have have significantly improved our understanding of the role of banks as an intermediary in the economy, particularly during financial crises. One of the Nobel Prize winners Ben S. Bernanke is an ex-chairman of the Federal Reserves.
Why Nobel Prize in Economics is different?
The Nobel Prize in Economics is different from all other Nobel Prizes because it was not mentioned in Alfred Nobel’s will of 1895. the Swedish central bank in his memory. In 1968, Sveriges Riksbank (Sweden’s central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, the founder of the Nobel Prize. The first prize in economic sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969 Source – nobelprize.org
Finding of the research work
- Ben Bernanke analyzed the Great Depression of the 1930s, the worst economic crisis in modern history. Among other things, he showed how bank runs were a decisive factor in the crisis becoming so deep and prolonged.
- Diamond demonstrated how banks perform another societally important function. As intermediaries between many savers and borrowers, banks are better suited to assessing borrowers’ creditworthiness and ensuring that loans are used for good investments.
- In their theory, Diamond and Dybvig show how banks offer an optimal solution to this problem. By acting as intermediaries that accept deposits from many savers, banks can allow depositors to access their money when they wish, while also offering long-term loans to borrowers.
Result – However, their analysis also showed how the combination of these two activities makes banks vulnerable to rumors about their imminent collapse. If a large number of savers simultaneously run to the bank to withdraw their money, the rumor may become a self-fulfilling prophecy – a bank run occurs and the bank collapses. These dangerous dynamics can be prevented through the government providing deposit insurance and acting as a lender of last resort to banks. excerpt – Nobelprize.org
Nobel Prize in Economics winners
Ben S. Bernanke was born in 1953 in Augusta, GA, USA. Ph.D. 1979 from Massachusetts Institute of Technology, Cambridge, USA. Distinguished Senior Fellow, Economic Studies, The Brookings Institution, Washington DC, USA.
Douglas W. Diamond was born in 1953. Ph.D. 1980 from Yale University, New Haven, CT, USA. Merton H. Miller Distinguished Service Professor of Finance, University of Chicago, Booth School of Business, IL, USA.
Philip H. Dybvig was born in 1955. Ph.D. 1979 from Yale University, New Haven, CT, USA. Boatmen’s Bancshares Professor of Banking and Finance, Washington University in St. Louis, Olin Business School, MO, USA.
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