Emerging market economies endure significant macroeconomic volatility. The large correlation between external factors, e.g., terms of trade and world interest rate shocks, and domestic macroeconomic volatility is highly suggestive of their key role, but it does not explain the mechanism through which they operate. The evidence hints at the presence of strong multiplier effects, of which financial mechanisms are leading candidates. Although a significant component of this macroeconomic volatility is exogenous to emerging markets, it does not mean that domestic policy is secondary. Quite the opposite: facing large volatility makes good domestic policy decisions all the more important. This volume is an attempt to characterize the main external shocks affecting emerging market economies, the sources of structural weaknesses, and the best policy frameworks for dealing with these problems. The main policy lessons are derived from a balanced combination of actual experiences documented through case and cross-country studies, and from normative analyses.External vulnerability and preventive policies: an overview / Ricardo J. Caballero, César Calderón, Luis Felipe Céspedes -- Why are capital flows so much more volatile in emerging than in developed countries? / Fernando A. Broner, Roberto Rigobon -- External conditions and growth performance / César Calderón, Norman Loayza, Klaus Schmidt-Hebbel -- Business cycle responses and the resilience of the chilean economy / Helmut Franken, Guillermo Le Fort, Eric Parrado -- Policy responses to external shocks: the experiences of Australia, Brazil, and Chile / Luis Felipe Céspedes, Ilan Goldfajn, Phil Lowe, Rodrigo O. Valdés -- Large hoardings of international reserves: are they worth it? / Pablo García, Claudio Soto -- Currency mismatches in chilean nonfinancial corporations / Kevin Cowan, Erwin Hansen, Luis Óscar Herrera -- Is the foreign exchange derivatives market effective and efficient in reducing currency risk? / Esteban Jadresic, Jorge Selaive -- Managing the capital account / Sebastián Edwards -- Sovereign debt, volatility, and insurance / Kenneth M. Kletzer -- Exchange rate interventions and insurance: is fear of floating a cause for concern? / Francisco Gallego, Geraint Jones -- Contingent reserves management: an applied framework / Ricardo J. Caballero, Stavros Panageas.