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Estimating Capital Flows to Emerging Market Economies with Heterogeneous Panels

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  • Hernandez Vega Marco A

Abstract

Current data provide macroeconomic information for a large number of countries and for a long period of time (macro panels). This causes that in these panels slope heterogeneity and cross-section dependence (CSD) are a rule rather than the exception, leading to 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. In addition, this work also suggests that not only the heterogeneity across countries is important to analyze capital inflows to emerging economies, but also the different responses of the different types of capital inflows to movements in macroeconomic variables.

Suggested Citation

  • Hernandez Vega Marco A, 2015. "Estimating Capital Flows to Emerging Market Economies with Heterogeneous Panels," Working Papers 2015-03, Banco de México.
  • Handle: RePEc:bdm:wpaper:2015-03
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    More about this item

    Keywords

    Capital Flows; Push and Pull Factors; Slope Heterogeneity; Common Factors; Cross-Section Dependence.;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F3 - International Economics - - International Finance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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