Hostname: page-component-586b7cd67f-rcrh6 Total loading time: 0 Render date: 2024-11-27T15:57:51.438Z Has data issue: false hasContentIssue false
  • English
  • Français

ESTIMATING CAPITAL FLOWS TO EMERGING MARKET ECONOMIES WITH HETEROGENEOUS PANELS

Published online by Cambridge University Press:  30 October 2017

Marco Hernandez-Vega
Marco Hernandez-Vega*
Affiliation:
Banco de Mexico
*
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: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

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.

Keywords

Capital FlowsPush and Pull FactorsHeterogeneous PanelsCross-Section Dependence
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 5 , July 2019 , pp. 2068 - 2088
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

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.

References

REFERENCES

Ahmed, Shaghil and Zlate, Andrei (2014) Capital flows to emerging market economies: A brave new world? Journal of International Money and Finance 48, 221–248.Google Scholar
Alberola, Enrique, Erce, Aitor, and Serena, Jose Maria (2016) International reserves and gross capital flows dynamics. Journal of International Money and Finance 60, 151–171.Google Scholar
Baek, In-Mee (2006) Portfolio investment flows to Asia and Latin America: Pull, push or market sentiment? Journal of Asian Economics 17, 363–373.Google Scholar
Baltagi, B. (2008) Econometric Analysis of Panel Data. Chichester, UK: John Wiley & Sons.Google Scholar
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, 27–59.Google Scholar
Broner, Fernando, Didier, Tatiana, Erce, Aitor, and Schmukler, Sergio L. (2013) Gross capital flows: Dynamics and crises. Journal of Monetary Economics 60, 113–133.Google Scholar
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.Google Scholar
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.Google Scholar
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.Google Scholar
Driscoll, John C. and Kraay, Aart C. (1998) Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics 80, 549–560.Google Scholar
Eberhardt, Markus (2012) Estimating panel time-series models with heterogeneous slopes. Stata Journal 12, 61–71.Google Scholar
Eberhardt, Markus and Bond, Stephen (2009) Cross-Section Dependence in Nonstationary Panel Model: A Novel Estimator. MPRA paper 17870, University Library of Munich.Google Scholar
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, 109–155.Google Scholar
Fernandez-Arias, E. (1996) The new wave of private capital inflows: Push or pull? Journal of Development Economics 48, 389–418.Google Scholar
Forbes, Kristin J. and Warnock, Francis E. (2012) Capital flow waves: Surges, stops, flight, and retrenchment. Journal of International Economics 88, 235–251.Google Scholar
Fratzscher, Marcel (2012) Capital flows, push versus pull factors and the global financial crisis. Journal of International Economics 88, 341–356.Google Scholar
Fratzscher, Marcel, Lo Duca, Marco, and Straub, Roland (2012) A Global Monetary Tsunami? On the Spillover of us Quantitative Easing. CEPR discussion papers 9195.Google Scholar
Hamilton, L. C. (1992) How Robust is Robust Regression? Stata technical bulletin 2, StataCorp LP.Google Scholar
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.Google Scholar
International Monetary Fund (2011) Recent Experiences in Managing Capital Inflows – Cross-Cutting Themes and Possible Policy Framework. Mimeo, International Monetary Fund.Google Scholar
International Monetary Fund (2012) Liberalizing Capital Flows and Managing Outflows. Mimeo, International Monetary Fund.Google Scholar
KabadayiBurhan, O. Burhan, O. Emsen, Selcuk, and Nisanci, Murat (2012) International portfolio movements: Panel data analysis. Journal of Applied Finance & Banking 2, 189–198.Google Scholar
Kapetanios, G., Pesaran, M. H., and Yamagata, T. (2011) Panels with non-stationary multifactor error structures. Journal of Econometrics 160, 326–348.Google Scholar
Kim, D. and Lin, S. (2010) Dynamic relationship between inflation and financial development. Macroeconomics Dynamics 14, 343–364.Google Scholar
Kim, D., Lin, S., and Wu, Y. (2016) Globalization and inflation: New panel evidence. Macroeconomics Dynamics 20, 1–26.Google Scholar
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, 619–635.Google Scholar
Neely, C. J. (2013) Four stories of quantitative easing. Federal Reserve Bank of St. Louis Review 95, 51–88.Google Scholar
Obstfeld, Maurice (2012) Financial flows, financial crisis, and global imbalances. Journal of International Money and Finance 31, 469–480.Google Scholar
Pesaran, M. H. and Smith, Ron (1995) Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics 68, 79–113.Google Scholar
Pesaran, M. H. (2004) General Diagnostic Tests for Cross Section Dependence in Panels. CESifo working paper series 1229, CESifo Group Munich.Google Scholar
Pesaran, M. H. (2006) Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 967–1012.Google Scholar
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, 229–232.Google Scholar
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, 162–188.Google Scholar
Rothenberg, Alex and Warnock, Francis E. (2011) Sudden flight and true sudden stops. Review of International Economics 19, 509–524.Google Scholar
Sarafidis, Vasilis and Wansbeek, Tom (2012) Cross-sectional dependence in panel data analysis. Econometric Reviews 31, 483–531.Google Scholar
Swamy, P. A. V. B. (1970) Efficient inference in a random coefficient regression model. Econometrica 38, 311–323.Google Scholar
Taylor, Mark P. and Sarno, Lucio (1997) Capital flows to developing countries: Long- and short-term determinants. World Bank Economic Review 11, 451–70.Google Scholar
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.Google Scholar