Research Department Staff Forecast, October 2018

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This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in October 2018 regarding the main macroeconomic variables—GDP, inflation and the interest rate. According to the staff forecast, gross domestic product (GDP) is projected to increase by 3.7 percent in 2018, similar to the previous forecast, and by 3.6 percent in 2019, slightly higher than the previous forecast. The inflation rate over the next year is expected to be 1.4 percent, similar to the previous forecast. The Bank of Israel interest rate is expected to increase to 0.25 percent in the first quarter of 2019, and to increase again, to 0.5 percent, in the third quarter of 2019.



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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