Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • April 2015
  • Article
  • Review of Financial Studies

Money Creation and the Shadow Banking System

By: Adi Sunderam
  • Format:Print
ShareBar

Abstract

Many explanations for the rapid growth of the shadow banking system in the mid-2000s focus on money demand. This paper asks whether the short-term liabilities of the shadow banking system behave like money. We first present a simple model where households demand money services, which are supplied by three types of claims: deposits, Treasury bills, and asset-backed commercial paper (ABCP). The model provides predictions for the price and quantity dynamics of these claims, as well as the behavior of the banking system (in terms of issuance) and the monetary authority (in terms of open market operations). Consistent with the model, the empirical evidence suggests that the shadow banking system does respond to money demand. An extrapolation of our estimates would suggest that heightened money demand could explain up to approximately half the growth of ABCP in the mid-2000s.

Keywords

Financial Instruments; Banks and Banking

Citation

Sunderam, Adi. "Money Creation and the Shadow Banking System." Review of Financial Studies 28, no. 4 (April 2015): 939–977.
  • Read Now

About The Author

Adi Sunderam

Finance
→More Publications

More from the Author

    • Review of Financial Studies

    The Cross Section of Bank Value

    By: Mark Egan, Stefan Lewellen and Adi Sunderam
    • 2021
    • Faculty Research

    Segmented Arbitrage

    By: Emil Siriwardane, Adi Sunderam and Jonathan Wallen
    • 2021
    • Faculty Research

    Shared Models in Networks, Organizations, and Groups

    By: Joshua Schwartzstein and Adi Sunderam
More from the Author
  • The Cross Section of Bank Value By: Mark Egan, Stefan Lewellen and Adi Sunderam
  • Segmented Arbitrage By: Emil Siriwardane, Adi Sunderam and Jonathan Wallen
  • Shared Models in Networks, Organizations, and Groups By: Joshua Schwartzstein and Adi Sunderam
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College