Latin American economies are exposed to substantial external vulnerability. Domestic imbalances and terms of trade shocks are often exacerbated by sudden stops of capital inflow. In this paper we explore ways of overcoming external vulnerability, drawing lessons from a detailed comparison of the...

We examine the relationship between the short-term volatility of the <em>effective</em> Real Exchange Rate (RER) and the degree of flexibility of the nominal exchange rate. Existing evidence demonstrates that the short-term variance of bilateral RERs is on average about 12 times higher under floating...