Shadow banking and the Chinese economy are two subjects that have independently garnered much attention. A new but actively growing literature is now emerging at their intersection. I review this literature and argue that shadow banking in China is not fundamentally different from the textbook definition of shadow banking, namely credit intermediation with maturity mismatch that is structured to avoid regulation. I emphasize maturity mismatch because that is what creates run risk and makes any shadow banking system inherently fragile. I explain how the rise of shadow banking in China can be traced back to stricter liquidity regulation, how shadow banking has changed the financial landscape in China, and what the current state of the industry is. Interactions between shadow banking and the rest of the economy have some characteristics that reflect China's unique politico-economic structure, but this is because the rest of the economy has these characteristics, not because there is something fundamentally different about the forces behind shadow banking in China.

and seminar participants at various institutions and conferences for helpful comments. Financial support from Chicago Booth and CUHK is gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Repeated interactions allow lenders to uncover private information about their clients, decreasing the informational asymmetry between a borrower and his lender but introducing one between the lender and competing …nanciers. This paper constructs a credit-based model of production to analyze how learning through lending relationships a¤ects the monetary transmission mechanism. I examine how monetary policy changes the incentives of borrowers and lenders to engage in relationship lending and how these changes then shape the response of aggregate output. A central …nding is that relationship lending induces a smoother steady state output pro…le and a less volatile response to certain monetary shocks. This result provides a theoretical basis for crosscountry transmission di¤erences via a relationship lending channel.

We investigate the effectiveness of central bank communication when firms have heterogeneous inflation expectations that are updated through social dynamics. The bank's credibility evolves with these dynamics and determines how well its announcements anchor expectations. We find that trying to eliminate high inflation by abruptly introducing low inflation targets generates short-term overshooting. Gradual targets, in contrast, achieve a smoother disinflation. We present empirical evidence to support these predictions. Gradualism is not equally effective in other situations though: our model predicts aggressive announcements are more powerful when combating deflation.