“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors

The characteriscs of recent capital inflows to Latin America are discussed. It is argued that these inflows are partially explained by economic conditions outside the region, like the recession in the United States and lower international interest rstes. The importance of external factors suggests that a reeversal in those condiitons may lead to a future capital outflow, increasing the macroeconomic vulnerability on Latin American economies. Policy options, it is argued, are limited.