Dailami, MansoorMasson, Paul2012-03-192012-03-192009-07-01https://hdl.handle.net/10986/4198The current financial crisis has highlighted the danger that declines in confidence can have a self-fulfilling effect on economic activity. In this paper, the authors consider ways of measuring investor and consumer confidence, and try to explain the evolution of confidence using measures of financial volatility, investment performance, macroeconomic outcomes, and policy actions. They identify a link between investor and consumer confidence. Finally, they show that liquidity provision and easing of interest rates had only a limited effect on financial market spreads during the crisis, arguing for additional measures to address the loss of confidence. The paper focuses on the need for financial regulatory reform, and shows how the incentives to cooperate in this area are stimulated by a common shock to confidence.CC BY 3.0 IGOACCESS TO CAPITALACCESS TO CAPITAL MARKETSADVANCED COUNTRIESAGGREGATE DEMANDAPRASSET CLASSESAUCTIONBALANCE OF PAYMENTSBALANCE SHEETSBANK LIQUIDITYBANK SUPERVISIONBANKING INDUSTRYBANKING SYSTEMSBASIS POINTSBEST PRACTICESBONDBOND PRICESBORROWING COSTSBUSINESS COMMUNITYBUSINESS CONFIDENCECALCULATIONSCAPITAL FLOWSCAPITAL MARKETCAPITAL MARKETSCENTRAL BANKCENTRAL BANKSCOMMERCIAL BANKCOMMERCIAL BANKSCOMMODITIESCOMMODITYCOMMODITY PRICESCONFIDENCE INDEXCONFIDENCE INDICESCONSUMERCONSUMER CONFIDENCECREDIBILITYCREDIT FACILITYCREDIT MARKETSCREDIT SPREADSCURRENCYDEBTDEBT ISSUANCEDEPOSITDEPOSIT INSURANCEDEPOSITSDEPRESSIONDEREGULATIONDETERIORATION IN CREDITDEVELOPING COUNTRIESDIVIDENDDIVIDEND POLICYDOMESTIC BANKSDURABLEECONOMIC ACTIVITYECONOMIC FUTUREECONOMIC SECURITYEFFECT OF LIQUIDITYEMERGING MARKETSEMERGING STOCK MARKETSEQUITIESEQUITY FLOWSEQUITY INSTRUMENTSEQUITY MARKETEQUITY MARKETSEQUITY PRICESEXCHANGE RATEEXCHANGE RATESEXPORT GROWTHFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL ASSETSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DATAFINANCIAL DISCLOSUREFINANCIAL INTEGRATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL POLICIESFINANCIAL POLICYFINANCIAL REFORMFINANCIAL REGULATIONFINANCIAL SECTORSFINANCIAL SERVICESFINANCIAL STABILITYFINANCIAL SYSTEMFINANCIAL VOLATILITYFISCAL POLICYFISCAL SUSTAINABILITYFOREIGN BANKSFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETSFOREIGN EXCHANGE RESERVEFOREIGN EXCHANGE RESERVESGLOBAL ECONOMYGLOBAL EQUITYGLOBAL EQUITY MARKETSGLOBAL FINANCIAL SYSTEMGLOBAL MARKETSGLOBALIZATIONGOVERNMENT ACTIONSGOVERNMENT BORROWINGGOVERNMENT DEBTGOVERNMENT FINANCINGGOVERNMENT POLICYGOVERNMENT SECURITIESGROWTH RATESHARMONIZATIONHOLDINGSINDUSTRIAL COUNTRIESINFORMATION ASYMMETRIESINSTITUTIONAL ENVIRONMENTSINSTITUTIONAL INVESTORINSTITUTIONAL INVESTORSINSTRUMENTINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINTERNATIONAL FINANCEINTERNATIONAL INVESTORSINTERNATIONAL POLITICSINTERNATIONAL PORTFOLIOINTERNATIONAL SETTLEMENTSINVESTINGINVESTMENT BANKSINVESTMENT PERFORMANCEINVESTOR BEHAVIORINVESTOR CONFIDENCELENDERLENDER OF LAST RESORTLIQUIDITYLIQUIDITY FACILITIESLOANLOAN PORTFOLIOLOCAL CAPITAL MARKETLOCAL CAPITAL MARKETSLOSS OF CONFIDENCEMACROECONOMIC CONDITIONSMACROECONOMIC DATAMACROECONOMIC INDICATORSMACROECONOMIC POLICYMARKET CAPMARKET INFORMATIONMARKET MAKERSMARKET PARTICIPANTSMARKET PERFORMANCEMARKET PRICESMARKET RATE OF RETURNMARKET VALUATIONMARKET VOLATILITYMONETARY AUTHORITIESMONETARY POLICIESMONETARY POLICYMONEY SUPPLYMORTGAGEMORTGAGE-BACKED SECURITIESMORTGAGESOPEN MARKETSOPEN-MARKET OPERATIONSOTHER ASSETSPERSONAL INCOMEPOLICY RESPONSEPOLICY RESPONSESPOLITICAL INSTABILITYPORTFOLIO FLOWSPOSTWAR PERIODPRESS COVERAGEPRICE DISCOVERYPRICE INDEXPRIMARY DEALERPRIMARY DEALERSPRIVATE BORROWERSPRIVATE CREDITPRIVATE EQUITYPRIVATE EQUITY INVESTORSPURCHASESRAPID GROWTHRECESSIONREGULATORREGULATORSREGULATORY AUTHORITIESREGULATORY AUTHORITYREGULATORY ENVIRONMENTREGULATORY REFORMREGULATORY SYSTEMRESEARCH ASSISTANCERISK AVERSIONRISKY ASSETSSALESSCANDALSCANDALSSECURITIESSECURITIES AS COLLATERALSECURITY MARKETSECURITY MARKETSSOVEREIGN BONDSOVEREIGN BOND MARKETSSOVEREIGN GUARANTEESSTANDARD DEVIATIONSSTOCK MARKETSTOCK MARKETSSWAPTAXTOTAL MARKETTRADE DATATRADESTRANSPARENCYTREASURIESTREASURYTREASURY SECURITIESUNCERTAINTYVALUATIONVOLATILITIESWEALTH CREATIONWORLD ECONOMYWORLD MARKETYIELD CURVEWorld Bank10.1596/1813-9450-5007