This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in January 2019[1] regarding the main macroeconomic variables—GDP, inflation and the interest rate. According to the staff forecast, gross domestic product (GDP) is projected to increase by 3.4 percent in 2019, slightly lower than the previous forecast, and by 3.5 percent in 2020. The inflation rate over the next year is expected to be 1.3 percent, slightly lower than the previous forecast, and 1.8 percent in 2020. The Bank of Israel interest rate is expected to increase to 0.5 percent in the third quarter of 2019, and to continue increasing gradually to 1.25 percent by the end of 2020 (the end of the forecast range).
Forecast
The Bank of Israel Research Department compiles a staff forecast of macroeconomic developments on a quarterly basis. The staff forecast is based on several models, various data sources, and assessments based on economists’ judgment.[2] The Bank’s DSGE (Dynamic Stochastic General Equilibrium) model developed in the Research Department—a structural model based on microeconomic foundations—plays a primary role in formulating the macroeconomic forecast.[3] The model provides a framework for analyzing the forces that have an effect on the economy, and allows information from various sources to be combined into a macroeconomic forecast of real and nominal variables, with an internally consistent “economic story”.
Full forecast, including graphs and data
[1] The forecast was presented to the Monetary Committee on October 7, 2018 during its meeting prior to the decision on the Bank of Israel interest rate reached on October 8, 2018.
[2] An explanation of the macroeconomic staff forecasts compiled by the Research Department, as well as a review of the models on which they are based, appear in Inflation Report number 31 (for the second quarter of 2010), Section 3c.
[3] A Discussion Paper on the DSGE model is available on the Bank of Israel website, under the title: “MOISE: A DSGE Model for the Israeli Economy,” Discussion Paper No. 2012.06.