Abstract
This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in July 2017. The forecast was presented to the Monetary Committee on July 9, 2017, during its meeting prior to the decision on the Bank of Israel interest rate reached on July 10, 2017. According to the staff forecast, gross domestic product (GDP) is projected to increase by 3.4 percent in 2017 and by 3.3 percent in 2018. The rate of inflation over the next year (ending in the second quarter of 2018) is expected to be 0.8 percent. The Bank of Israel interest rate is expected to remain at its current level of 0.1 until the first quarter of 2018, and to increase gradually from the second quarter of 2018.
 
 
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".

 

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