Talk:Diamond–Dybvig model
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Public thank-you
[edit]I'd just like to thank User:Rinconsoleao for the nice work in bringing out the first version of this article. It's a fine exposition. Well done! Eubulides (talk) 16:40, 30 May 2008 (UTC)
Too Big To Fail
[edit]Can someone explain exactly what the DD model has to say about "too big to fail" ? DD model really says nothing about whether a firm is too big to fail, it doesn't address the question of whether a particular firms bankruptcy or collapse would either pose a systemic risk to the system or create enough uncertainty to allow a mass bank run for firms holding large amounts of similar assets. You could attempt to get some dynamics of this by aggregating multiple banks modeled via DD and analyzing liquidity risk-sharing, but it would really only give you enough to analyze the effects of a particular firms collapse on deposit insurance rather than systemic risk posed to the financial system itself.
If you really wanted to analyzing "too big to fail" you'd need a dynamic or network analysis (I think network analysis works better but whatever) that incorporates financial contagions. There are a collection of models out there like the recent stuff from Stiglitz, Allen & Gale, Kiyotaki & Moore etc. Regardless, to properly capture the dynamics of the current crisis in the context of "too big to fail" you'd need a more sophisticated model of modern banking that the DD model, something along the lines of Shleifer & Vishny's unstable bank model or Diamond (the same one that came up with this model) & Rajan's fragile banking theory among some others out there. Obviously, all of these incorporate work from the DD model, but far more than the DD model is needed to capture the complexities of "too big to fail."
If no one objects, I'm just going to remove that paragraph in a day or two. Seelum (talk) 04:20, 17 January 2010 (UTC)
I would actually prefer that the paragraph on "too big to fail" is kept. It is helpful to point out that the DD model has no clear implications on the "too big to fail"-argument. The sentence noting that Krugman linked to this entry could be removed though, while keeping the reference. God of the Gaps (talk) 09:21, 5 April 2010 (UTC)