IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1951.html
   My bibliography  Save this paper

The impact of policy announcements and news on capital markets : crisis management in Argentina during the Tequila Effect

Author

Listed:
  • Ganapolsky, Eduardo J. J.
  • Schmukler, Sergio L.

Abstract

Argentina was hit hard by the Mexican crisis of 1994-95. The Argentine peso came under attack and there was a run on bank deposits. Argentina'successfully announced a series of policies to mitigate the spillover effects, without abandoning its currency board. The authors show how capital markets reacted to each policy announcement and piece of breaking news. They find that Argentina's agreement with the International Monetary Fund, the dollarization of reserve deposits in the central bank, and the reduction in reserve requirements, among other things, had a strong positive impact on market returns. The market welcomed announcements that reflected the adoption of credible policies and demonstrated a firm commitment to the currency board. The authors also find that, after a period of higher volatility, the appointment of a new finance minister (after Domingo Cavallo left the finance ministry) calmed down stock and bond markets, significantly decreasing the variance in stock and bond market returns. On the other hand, the interest rate became more volatile after the appointment of the new finance minister and when reserve requirements were lowered.

Suggested Citation

  • Ganapolsky, Eduardo J. J. & Schmukler, Sergio L., 1998. "The impact of policy announcements and news on capital markets : crisis management in Argentina during the Tequila Effect," Policy Research Working Paper Series 1951, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1951
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1998/07/01/000009265_3980928162554/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
    2. Berry, Thomas D & Howe, Keith M, 1994. " Public Information Arrival," Journal of Finance, American Finance Association, vol. 49(4), pages 1331-1346, September.
    3. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Rodrigo Valdés, 1997. "Emerging Market Contagion: Evidence and Theory," Working Papers Central Bank of Chile 07, Central Bank of Chile.
    5. Hardouvelis, Gikas A., 1988. "Economic news, exchange rates and interest rates," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 23-35, March.
    6. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-1191, September.
    7. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters,in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
    8. Harvey, Campbell R & Huang, Roger D, 1991. "Volatility in the Foreign Currency Futures Market," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 543-569.
    9. Jeffrey A. Frankel & Sergio L. Schmukler, 1996. "Crisis, contagion, and country funds: effects on East Asia and Latin America," Proceedings, Federal Reserve Bank of San Francisco, pages 232-266.
    10. Charles M. Jones & Owen Lamont & Robin Lumsdaine, 1996. "Public Information and the Persistence of Bond Market Volatility," NBER Working Papers 5446, National Bureau of Economic Research, Inc.
    11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Terhi Jokipii & Brian Lucey, 2005. "CEE Banking Sector Co-Movement: Contagion or Interdependence?," The Institute for International Integration Studies Discussion Paper Series iiisdp077, IIIS.
    2. Olcay Yucel Culha & Fatih Ozatay & Gulbin Sahinbeyoglu, 2006. "The Determinants of Sovereign Spreads in Emerging Markets," Working Papers 0604, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    3. Marcelo Dabos & Maria Laura Gomez Mera, 1998. "The Tequila Banking Crisis in Argentina," Working Papers 19, Universidad de San Andres, Departamento de Economia, revised Sep 1999.
    4. Brock, Philip L., 1998. "Financial safety nets and incentive structures in Latin America," Policy Research Working Paper Series 1993, The World Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1951. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.