Research Department Staff Forecast, March 2015

24/03/2015

Abstract

This document presents the forecast of macroeconomic developments compiled by the

Bank of Israel Research Department in March 2015. The forecast was presented to the

Monetary Committee on March 22, 2015, during its meeting prior to the decision on

the Bank of Israel interest rate for April 2015. According to the staff forecast, gross

domestic product (GDP) is projected to increase by 3.2 percent in 2015, and by 3.5

percent in 2016. The rate of inflation over the next year (ending in the first quarter of

2016) is expected to be 1.1 percent. The Bank of Israel interest rate is expected to

remain at its current level of 0.1 percent until the end of 2015.

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 medium scale 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.

The model provides a framework for analyzing the forces which have an effect on the economy, and

allows the integration of information from various sources into a macroeconomic

forecast for real and nominal variables, with an internally consistent "economic

story".