​One of the functions of the Governor of the Bank of Israel is to provide the government with advice on economic matters. The various departments in the Bank, and in particular the Research Department, help the Governor in his formulation of policy recommendations and in assessing the government's policy by monitoring and analyzing economic developments, and by creating a research infrastructure for informed policy decisions. The results of ongoing analysis, research and assessments are presented to the decision makers in the Bank of Israel, government ministries and Knesset committees, and to the public, and contribute to the understanding of economic processes, the identification of trends and risks, the professional examination of policy proposals, and the formulation of policy in the Ministry of Finance and other ministries, including the formulation of the state budget. Research and economic analysis follow three routes:

  • Monitoring and analyzing current developments in the economy: The results are published in the Bank's Annual Report, which by law is submitted to the government and the Knesset, and in periodic reports such as the Monetary Policy Report (formerly called the Inflation Report) and Recent Economic Developments. The Research Department also publishes a monthly Composite State-of-the-Economy Index which gives a real-time indication of developments in the real side of the economy. It also publishes forecasts of GDP and uses (private consumption, public consumption, exports and investment) and the unemployment rate.
  • Initiating economic policy proposals in accordance with the changing needs of the
    economy: Notable instances of this are the participation in the preparation of the Economic Stabilization Program (1985), the formulation of the economic approach to the program to absorb the mass immigration of the 1990s, and the reforms in the money and capital markets. Other examples are participation in the formulation of the program to reduce poverty in Israel, the examination of the contribution of the negative income tax program (or Earned Income Tax Credit, EITC) to the reduction of poverty and encouragement of employment, and the formulation of proposals for government policy in reaction to the global economic crisis. The Bank's researchers participate in the formulation of economic policy via various committees, such as the Brodet Committee that recommended a multi-year framework for the defense budget, and analyze the proposals put forward by other entities in the economy.
  • Studies into various aspects of Israel's economy: These are published in the Bank's Discussion Paper series and in Israel Economic Review, published jointly with the Israel Economic Association, and in other publications in Israel and abroad. The studies deal with identifying and analyzing basic economic processes and various policy issues.