Research Department Staff Forecast, January 2018

10/01/2018
All Press Releases In Subject:
The Economy and Economic Activity
Abstract
This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in January 20181 . According to the staff forecast, gross domestic product (GDP) is projected to increase by 3.4 percent in 2018 and by 3.5 percent in 2019. The rate of inflation over the next year2 is expected to be 1.1 percent. The Bank of Israel interest rate is expected to remain at its current level of 0.1 percent over the first three quarters of the year, and to increase to 0.25 percent in the fourth quarter of the year.

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.3 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 forecast4 . 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”.