This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in April 2017. The forecast was presented to the Monetary Committee on April 5, 2017, during its meeting prior to the decision on the Bank of Israel interest rate on April 2017. According to the staff forecast, gross domestic product (GDP) is projected to increase by 2.8 percent in 2017 (although the basic growth rate[1] is expected to be higher) and by 3.3 percent in 2018. The rate of inflation over the next year (ending in the first quarter of 2018) is expected to be 0.7 percent. The Bank of Israel interest rate is expected to remain at its current level of 0.1 percent during the coming year, and to increase gradually from the second quarter of 2018.
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.[2] 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".


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[1] The growth rate net of the fluctuations in vehicle imports.
[2] A Discussion Paper on the model is available on the Bank of Israel website, under the title: “MOISE: A DSGE Model for the Israeli Economy,” Discussion Paper No. 2012.06.