The Functions of the Bank of Israel:Adviser to the Government on economic matters

​The Bank's Research Department assists the Governor in preparing policy recommendations and assessing policy in his/her capacity as the government's economic advisor (as stated in section 7(b) in the Law)). The Department also monitors and analyzes economic processes and distributes its findings to decision-makers-the government, Knesset committees, the public, and international and other organizations. Finally, it creates a research infrastructure for intelligent policy decisions.   

The ongoing analyses and studies help to understand economic processes, macroeconomic trends, professional discussion of policy proposals, and the economic analysis that underlies the policy formulated by the Ministry of Finance, including the construction of the budget. The ongoing analysis also helps to detect impending risks to growth and stability and to adopt timely preventive policies.   

The Bank's economic research takes place on three major paths:   
Monitoring and analysis of local economic developments: the main results are published in the Bank of Israel's Annual Report , which is submitted to the government and the Finance Committee of the Knesset as required by the Bank of Israel Law, and in the inflation reports and the quarterly publication Recent Economic Developments .
The Research Department also carries out and publishes the results of a quarterly survey of some 750 manufacturing firms and 300 companies in a variety of other industries, and publishes a monthly state-of-the-economy index

Economic policy proposals: the Department's economists participate in shaping economic policy as members of the socioeconomic agenda committees (in conjunction with the Ministry of Finance and the Prime Minister's Office). The Department also prepares economic-policy proposals at its initiative in accordance with the changing needs of the economy. Salient examples of this are its participation in preparing the economic stabilization program (1985), putting together the economic outlook behind the program for mass immigrant absorption in the 1990s, and money- and capital-market reforms. The Department also examines policy proposals put forward by other organizations and participates in formulating the Bank's response to them. 

Basic and applied research: the Department's economists investigate various domestic economic issues in a broad range of domains: the pass-through mechanism of monetary policy, domestic supply and demand of goods and services, capital market, balance of payments, prices, principal industries, labor market, the government budget, government economic policy, etc. These studies are published regularly in the Discussion Papers series, the Bank of Israel's Economic Review (Hebrew), Israel Economic Review (IER), and other professional journals published in Israel and abroad. The studies both identify and analyze fundamental economic processes domestic and various policy issues.  
  
In the Bank's capacity as the government's economic advisor, the Research Department develops analytical tools and performs quantitative policy analyses. One such tool analyzes the long-term effects of budget policy; another is a macroeconomic model that predicts tax receipts, making it possible to test the reasonability of the budget's revenue estimates.   

The Department's economists participate in various professional committees and contribute their vast knowledge to the panels' purviews (e.g., elements of the government's socioeconomic agenda; policymaking related to the hiring of Israelis in the construction industry; the introduction of an Earned Income Tax Credit; examination of the defense budget (the Brodet Committee), and preparations for sessions of the Caesarea Conference). The Department also helps international agencies such as the IMF and the OECD to obtain an up-to-date picture of the domestic economy and economic policy issues.