Abstract
The Mexican 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 paper studies how capital markets reacted to each policy announcement and news. Capital markets welcomed announcements that demonstrated a firm commitment to the currency board. The agreement with the 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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