Editing Money multiplier (section)

=== "Loans first" model ===
An alternative interpretation of the direction of causality in the identity described above is that the connection between the money supply and the monetary base goes from the former to the latter: Interest-rate-targeting central banks supply whatever amount of reserves that the banking system demands, given the reserve requirements and the amount of deposits that have been created.<ref>{{Cite web|url=https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/senior.fellows/2019-20%20fellows/BanksCannotLendOutReservesAug2013_%20(002).pdf|title=Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves|last=Sheard|first=Paul|date=2013-08-13|website=[[Standard & Poor's]]|url-status=live|archive-url=https://web.archive.org/web/20191114194230/https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/senior.fellows/2019-20%20fellows/BanksCannotLendOutReservesAug2013_%20(002).pdf|archive-date=2019-11-14|access-date=2019-11-14}}</ref>

In this alternative model of money creation, loans are first extended by commercial banks – say, $1,000 of loans, which may then require that the bank borrow $100 of reserves either from depositors or other private sources of financing, or from the central bank. This view is advanced in [[endogenous money]] theories.<ref name=Abel/> It is also occasionally referred to as a "Loans first" model as opposed to the traditional multiplier theory, which can be labelled a "Reserves first" model.<ref>{{cite web |last1=Rendahl |first1=Pontus |last2=Freund |first2=Lukas B. |title=Banks do not create money out of thin air |url=https://cepr.org/voxeu/columns/banks-do-not-create-money-out-thin-air |website=CEPR |access-date=19 October 2023 |language=en |date=14 December 2019}}</ref>