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The use of multiple-input multiple-output (MIMO) channels has recently attracted considerable interest as an approach that can yield significant capacity gains over conventional smart antenna arrays. This paper presents a new channel model for MIMO systems operating in populated indoor environments. The model is based on geometrical optics and a detailed radar cross-section (RCS) representation of the human body, and it is capable of estimating the temporal response and the capacity bounds for MIMO channels in the presence of pedestrian traffic. For a single room environment, the new channel model predicts an increase in capacity from 19.1 bits/s/Hz to 31.4 bits/s/Hz solely caused by the movement of pedestrians. The new channel modelling technique offers an efficient solution to the performance evaluation of MIMO wireless systems in populated indoor environments.