the advanced- and emerging-country CIF factors respectively, to .28 and .21 for the COD factors. Standard ADF tests reject at the 5 percent con...dence level the null of a unit root for the emerging-country group factors, as well as the advanced-country COD factor. For the remaining factors (global CIF and COD, and advanced-country CIF), both ADF and KPSS tests fail to reject their nulls of non- and stationarity, respectively. However, unit root tests allowing for a break in constant and trend in the run up to the global crisis do reject the null of a unit root at the 5 percent level in all three cases.<sup>16</sup> We conclude that all the common factors are stationary.<sup>17</sup> It is also apparent from Figure 2 that the global CIF and COD factors follow very similar patterns. Their correlation coe¢ cient equals 0.95. Table 4, which reports the correlation pattern of the group factors, shows that the advanced-country CIF and COD factors are also highly correlated –their correlation equals 0.82. Overall, this implies that advancedcountry in‡ows and out‡ows are driven essentially by the same common shocks. In turn, the emerging-country group factors are also positively correlated, but to a more limited extent – their correlation is just 0.34. The table also shows that the group factors are not signi...cantly correlated across groups. This applies to both in‡ow factors and out‡ow factors, as well as the cross-group in‡ow-out‡ow correlation.

The estimated factor model provides a satisfactory account of the observed cross-country comovement of capital ‡ows. The exponents of cross-sectional dependence of the CIF and COD residuals from the estimation equal 0.40 and 0.33, respectively, and their 95 percent con...dence regions reach up to 0.50 and 0.37, far below 1. Thus, once the common factors have been removed, the residuals show no traces of strong cross-sectional dependence. Also, panel unit root and stationarity tests indicate that the residuals are stationary (see Table A5 in the Appendix).

The sensitivity of each country’s gross ‡ows to global and group-speci...c common factors is given by its factor loadings (�m;i and �m;i in equation (1)). Figures 4 and 5 show the estimated global and group factor loadings, respectively. The dots denote the 95-percent con...dence bands. For advanced countries, Figure 4 shows that the global factor loading estimates, for both in‡ows and out‡ows, are positive in every case, except for the COD global factor loading in the case of New Zealand. Further, all the loadings, except New Zealand’s (for both CIF and COD) are signi...cant at the 5 percent level.<sup>18</sup> For emerging markets,

> 16When the test procedure endogenously selects the date of the break, it is placed at some point in the 20052007 interval, depending on the exact speci...cation of the test and the common factor under consideration.

> 17It is important to note that, even if the factors were I(1), estimates of the factor model in levels (as computed here) should perform better than estimates of the model in ...rst di¤erences, as long as the idiosyncratic components are I(0); see Choi (2017) and Ergeman and Rodriguez-Caballero (2016). Such condition holds in our case, as noted later in the text.

> 18Inference on the loadings is based on Choi (2012). His analysis applies to single-level factor models.

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