Abstract:
This study examines the time varying characteristics of business cycles in Israel in 1960-2009. During the 1990s the Israeli economy underwent many structural changes and reforms, which gradually turned it from an emerging to an advanced economy. The study shows that the characteristics of business cycles in 1991–2009 were different than those of business cycles in 1960–90. Until the 1990s, business cycles were more similar to those of emerging markets, while since the early 1990s they share more similarities with those of advanced economies. In addition, Israel's transition from an emerging to an advanced economy is reflected in its GDP elasticity to macroeconomic shocks—after 1995 economic activity became more sensitive to financial crises and monetary shocks, whereas its sensitivity to other macroeconomic shocks declined. This is consistent with the transition of Israel's economy to price stability and the decentralization of the financial sector.