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  • Marco Hernandez-Vega (a1)

Current data provide macroeconomic information for a large number of countries and for long periods of time (macropanels). In such panels, slope heterogeneity and cross-section dependence (CSD) are the rule rather than the exception, leading the fixed effects slope estimators to be biased and inconsistent. This paper analyzes gross capital flows to emerging economies employing the Augmented Mean Group (AMG) model to account for slope heterogeneity and CSD. The results suggest that the AMG performs better than the fixed effects model and that not only country heterogeneity is important to analyze capital inflows to emerging economies, but also are the differences among the types of capital inflows.

Corresponding author
Address correspondence to: Marco A. Hernandez-Vega, Directorate General of Economic Research, Banco de Mexico, Ave. Cinco de Mayo 18, Col Centro, Mexico City 06059, Mexico; e-mail:
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I would like to thank Alfonso Guerra; the participants of the IX Annual Seminar on Risk, Financial Stability and Banking; the participants of the Annual Meeting of the Latin American and Caribbean Economic Association and Latin American Meeting of the Econometric Society; and the participants of the 2nd Annual Conference of the International Association for Applied Econometrics for their comments. I also would like to thank Diego Cardozo for excellent research assistance and two anonymous referees at Banco de Mexico. The views expressed in this paper are solely the responsibility of the author and should not be interpreted as reflecting the views of Banco de Mexico, or of any other person associated with such institutions.

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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
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