The Impact of Policy Announcements and News on Capital Markets: Crisis Management in Argentina During the Tequila Effect
Working papers (original series) | 1998 | N 5
Keywords:
Anuncios de políticas, Noticias, Mercados de capitales, Contagio, Efectos de derrame, Gestión de crisis, Crisis financiera, Crisis mexicanaAbstract
The Mexican crisis of 1994-5 had strong contagion effects on Argentina: the peso came under attack and there was a run on bank deposits. Argentina successfully announced a series of policies to revert the spillover effects, without abandoning its currency board. This paper studies how capital markets reacted to each policy announcement and news. We find that the agreement with the International Monetary Fund, the dollarization of reserve deposits in the Central Bank, and the change in reserve requirements, among other measures, had a strong positive impact on market returns. We also find that after a period of higher volatility, the change of the finance minister significantly decreased the variance of stock and bond market returns, while lower reserve requirements increased the volatility in the capital markets. In conclusion, announcements that reflected the adoption of credible policies and that demonstrated a firm commitment to the currency board were welcomed by the markets.
JEL classification: E14, E58, F15, G14, G15
