The total volume of nonfinancial commercial paper outstanding peaked in the fall of 2000 and has declined rapidly ever since. By September 2002, the market had shrunk more than 50 percent. Relative to historical patterns, both the magnitude and the timing of the decline are unusual. The decline is the largest on record, and the market started to shrink before the recent recession began. In the past, the volume of commercial paper outstanding tended to increase during the early stages of recessions. ; Commercial paper is an important source of external funding for corporate borrowers and has become increasingly popular over the years. Despite a recent dramatic decline, the volume of commercial paper outstanding in September 2002 was still about one-sixth of bank commercial and industrial loans. ; Shen investigates the factors contributing to the dramatic decline in the commercial paper market and assesses whether the recent shrinkage is likely to continue. She begins by documenting the recent sharp decline in the volume of nonfinancial commercial paper outstanding and contrasts this development with historical experience. Next, she considers the factors that may have reduced the supply of credit in the commercial paper market and discusses the factors that may have reduced the demand. She concludes that declines in both supply and demand have contributed to the shrinkage of the market. Looking forward, although the demand factors are waning, the supply factors are likely to persist in the near term and keep the commercial paper market under pressure.