Abstract:
This paper presents a medium-scale micro-founded model with real and nominal imperfections, named "MOISE" (MOdel for the ISraeli Economy). The model was developed at the Bank of Israel to support monetary policy formulation, and builds on similar models in wide use among central banks. It includes extensions and modifications that reflect the special characteristics of the Israeli economy and are intended to improve the model's fit to Israeli data. The model was estimated using the increasingly popular Bayesian approach, using Israeli data for 1992:Q1 to 2009:Q4. The model's fit was tested using two criteria: the moments' fit and in-sample forecast performance. Finally, the paper presents and analyzes the model's properties using impulse response functions and variance decomposition.
JEL classification: C11, E32, E37, F41
Keywords: DSGE, Open Economy Macroeconomics, Bayesian Analysis, Forecasting, Business cycles, Models and Applications, Israel