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Crisis Management in Argentina during the 1994-95 Mexican Crisis: How Did Markets React?

Authors: Eduardo Ganapolsky, and Sergio Schmukler
Pub. Date: April 1, 2001
Full Text: Adobe Acrobat (PDF) [278 KB]

The Mexican financial crisis of 1994–95 had strong spillover effects on Argentina. The Argentine government successfully announced a series of policies to mitigate the contagion effects. This article studies how capital markets reacted to each policy announcement and news reports. Capital markets welcomed announcements that demonstrated a firm commitment to the currency board. The agreement with the International Monetary Fund (IMF), the dollarization of reserve deposits in the central bank, and changes in reserve requirements had a strong positive impact on market returns. After a period of higher volatility, the appointment of a new finance minister significantly decreased the
variance of stock and bond returns, while lower reserve requirements increased the volatility of interest rates.

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