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Mr. Christian Bogmans, Mr. Andrea Pescatori, and Ervin Prifti
We study how two aspects of food insecurity - caloric insufficiency and diet composition - are affected by aggregate economic fluctuations. The use of cross-country panel data allows us to adopt a global prospective on the identification of the macroeconomic determinants of food insecurity. Income shocks are the most relevant driver of food insecurity, displaying high elasticities at the early stages of economic development. The role of food price shocks is more limited. Social protection has a direct effect and mitigates the impact of income shocks. Effects are highly heterogeneous across a range of structural characteristics of the economy, highlighting the role of distributional aspects and of food import dependency.
Mr. Christian Bogmans, Mr. Andrea Pescatori, and Ervin Prifti

for equation 3 is Z = { Z 1 , Z 2 , Z 1 x Z 2 }. 6 Results Table 3 shows the estimated coefficients for our main equation (2) , where changes in the (log) share of undernourished are regressed on economic growth, changes in food inflation, on (log) per capita social protection expenditure and initial conditions of undernourishment. Column (1) shows the simple first differences (FD) estimates, while column (2) has the results for the first difference instrumental variables (FD-IV) estimator. TABLE 3: Estimation results of main equation: PoU

-hand side variables. Since the agriculture share (agr) and the human capital indicator (school) are based on lagged GDP. agricultural production, schooling, and population growth, the most plausible candidate for this type of correlation is normalized PPP-GDP (gdp) . 24 To address these problems, we proceeded in two steps. First, we performed standard Hausman tests 25 based on estimating equation (19) in first differences, that is, comparing the plain OLS FD estimates of equation (19) with FD estimates using lagged right-hand side variables as instruments. Lagged

Ms. Kornelia Krajnyak and Mr. Jeromin Zettelmeyer
This paper estimates equilibrium dollar wages for 15 transition economies. Equilibrium dollar wages are interpreted as full employment wages consistent with a country’s physical and human capital endowment, and estimated by regressing actual dollar wages on productivity and human capital proxies in a short (1990-95) panel of 85 countries. The main results are: (i) equilibrium dollar wages have appreciated steadily in the Baltic countries and fast-reforming Central and Eastern European (CEE) transition economies, but have been flat in most CIS countries; and (ii) 1996 actual dollar wages remain below estimated equilibrium dollar wages for most but not all transition countries covered.
Ms. Kornelia Krajnyak and Mr. Jeromin Zettelmeyer

equilibrium exchange rate appreciates. If the market exchange rate follows suit and overshoots, this could result in an increase in dollar wages over and above the increase which corresponds to the increase in PPP-GDP, leading to a positive correlation between PPP-GDP and the error term. To address this problem, we performed standard Hausman tests 19 based on estimating (19) in first differences, i.e. comparing the plain OLS FD estimates of (19) with FD estimates using lagged right hand side variables as instruments. Lagged endogenous variables are clearly less than

International Monetary Fund. Research Dept.
This paper analyzes contagion and volatility with imperfect credit markets. The paper interprets contagion effects as an increase in the volatility of shocks impinging on the economy. The implications of this approach are analyzed in a model in which domestic banks borrow at a premium on world capital markets, and domestic producers borrow at a premium from domestic banks. Financial spreads depend on a markup that compensates lenders, in particular, for the expected cost of contract enforcement. Higher volatility increases financial spreads and the producers’ cost of capital.