Recent events in some European countries might suggest that increased capital inflows inevitably appreciate the real exchange rate and increase financial fragility. Hence, opening domestic financial markets to international investors seems a perilous undertaking. If autarky is rejected, however,...

I use an indirect approach to examine the effects of capital inflows on real exchange rates in a sample of 46 developing countries. Distinguishing between autonomous and accomodating capital inflows and disaggregating capital inflows into foreign direct investment, portfolio investment and other...