This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in October 2019 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 3.1 percent in 2019, similar to the previous forecast, and by 3.0 percent in 2020, lower than the previous forecast. The inflation rate in the four quarters ending in the third quarter of 2020 is expected to be 1.2 percent, lower than the previous forecast. The Bank of Israel interest rate in one year is expected to be 0.25 percent or to decline during the year to 0.1 percent.
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. 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”.