Research Department Staff Forecast, January 2023

Abstract

This document presents the macroeconomic staff forecast formulated by the Bank of Israel Research Department in January 2023[1] concerning the main macroeconomic variables—GDP, inflation, and the interest rate.

According to the forecast, GDP is expected to grow by 2.8 percent in 2023, and by 3.5 percent in 2024.  The inflation rate in the coming four quarters (ending in the fourth quarter of 2023) is expected to be 3.0 percent. The inflation rate in 2024 is expected to be 2.0 percent.  According to the forecast, the monetary interest rate is expected to average 4.0 percent in the fourth quarter of 2023.

The 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. 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.[2] 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”.