Skip to main content


  • 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:
Hide All

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.

Hide All
Ahmed Shaghil and Zlate Andrei (2014) Capital flows to emerging market economies: A brave new world? Journal of International Money and Finance 48, 221248.
Alberola Enrique, Erce Aitor, and Serena Jose Maria (2016) International reserves and gross capital flows dynamics. Journal of International Money and Finance 60, 151171.
Baek In-Mee (2006) Portfolio investment flows to Asia and Latin America: Pull, push or market sentiment? Journal of Asian Economics 17, 363373.
Baltagi B. (2008) Econometric Analysis of Panel Data. Chichester, UK: John Wiley & Sons.
Bowman David, Londono Juan M., and Spariza Horacio (2015) U.S. unconventional monetary policy and transmission to emerging market economies. Journal of International Money and Finance 55, 2759.
Broner Fernando, Didier Tatiana, Erce Aitor, and Schmukler Sergio L. (2013) Gross capital flows: Dynamics and crises. Journal of Monetary Economics 60, 113133.
Byrne Joseph P. and Fiess Norbert (2011) International Capital Flows to Emerging and Developing Countries: National and Global Determinants. SIRE discussion papers 2011-03, Scottish Institute for Research in Economics.
Calvo G., Leiderman L., and Reinhart C. M. (1993) Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors. IMF staff papers 40, 108–151.
Chudik Alexander and Pesaran M. H. (2013) Large Panel Data Models with Cross-Sectional Dependence: A Survey. Globalization and Monetary Policy Institute working paper 153, Federal Reserve Bank of Dallas.
Driscoll John C. and Kraay Aart C. (1998) Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics 80, 549560.
Eberhardt Markus (2012) Estimating panel time-series models with heterogeneous slopes. Stata Journal 12, 6171.
Eberhardt Markus and Bond Stephen (2009) Cross-Section Dependence in Nonstationary Panel Model: A Novel Estimator. MPRA paper 17870, University Library of Munich.
Eberhardt Markus and Teal Francis (2011) Econometrics for grumblers: A new look at the literature on cross-country growth empirics. Journal of Economic Surveys 25, 109155.
Fernandez-Arias E. (1996) The new wave of private capital inflows: Push or pull? Journal of Development Economics 48, 389418.
Forbes Kristin J. and Warnock Francis E. (2012) Capital flow waves: Surges, stops, flight, and retrenchment. Journal of International Economics 88, 235251.
Fratzscher Marcel (2012) Capital flows, push versus pull factors and the global financial crisis. Journal of International Economics 88, 341356.
Fratzscher Marcel, Lo Duca Marco, and Straub Roland (2012) A Global Monetary Tsunami? On the Spillover of us Quantitative Easing. CEPR discussion papers 9195.
Hamilton L. C. (1992) How Robust is Robust Regression? Stata technical bulletin 2, StataCorp LP.
Haque Nadeem Ul, Pesaran M. H., and Sharma Sunil (1999) Neglected Heterogeneity and Dynamics in Cross-Country Savings Regressions. IMF working papers 99/128, International Monetary Fund.
International Monetary Fund (2011) Recent Experiences in Managing Capital Inflows – Cross-Cutting Themes and Possible Policy Framework. Mimeo, International Monetary Fund.
International Monetary Fund (2012) Liberalizing Capital Flows and Managing Outflows. Mimeo, International Monetary Fund.
Kabadayi Burhan, O. Emsen Selcuk, and Nisanci Murat (2012) International portfolio movements: Panel data analysis. Journal of Applied Finance & Banking 2, 189198.
Kapetanios G., Pesaran M. H., and Yamagata T. (2011) Panels with non-stationary multifactor error structures. Journal of Econometrics 160, 326348.
Kim D. and Lin S. (2010) Dynamic relationship between inflation and financial development. Macroeconomics Dynamics 14, 343364.
Kim D., Lin S., and Wu Y. (2016) Globalization and inflation: New panel evidence. Macroeconomics Dynamics 20, 126.
Montiel Peter and Reinhart C. M. (1999) Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s. Journal of International Money and Finance 18, 619635.
Neely C. J. (2013) Four stories of quantitative easing. Federal Reserve Bank of St. Louis Review 95, 5188.
Obstfeld Maurice (2012) Financial flows, financial crisis, and global imbalances. Journal of International Money and Finance 31, 469480.
Pesaran M. H. and Smith Ron (1995) Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics 68, 79113.
Pesaran M. H. (2004) General Diagnostic Tests for Cross Section Dependence in Panels. CESifo working paper series 1229, CESifo Group Munich.
Pesaran M. H. (2006) Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 9671012.
Pesaran M. H. and Baltagi B. (2007) Heterogeneity and cross section dependence in panel data models: Theory and applications introduction. Journal of Applied Econometrics 22, 229232.
Phillips Peter C. B. and Sul Donggyu (2007) Bias in dynamic panel estimation with fixed effects, incidental trends and cross section dependence. Journal of Econometrics 137, 162188.
Rothenberg Alex and Warnock Francis E. (2011) Sudden flight and true sudden stops. Review of International Economics 19, 509524.
Sarafidis Vasilis and Wansbeek Tom (2012) Cross-sectional dependence in panel data analysis. Econometric Reviews 31, 483531.
Swamy P. A. V. B. (1970) Efficient inference in a random coefficient regression model. Econometrica 38, 311323.
Taylor Mark P. and Sarno Lucio (1997) Capital flows to developing countries: Long- and short-term determinants. World Bank Economic Review 11, 451–70.
Vaona Andrea (2008) STATA Tip: A Quick Trick to Perform a Roy-Zellner Test for Poolability in Stata. Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0804, USI Università della Svizzera italiana.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *



Full text views

Total number of HTML views: 0
Total number of PDF views: 5 *
Loading metrics...

Abstract views

Total abstract views: 27 *
Loading metrics...

* Views captured on Cambridge Core between 30th October 2017 - 18th November 2017. This data will be updated every 24 hours.