Monetary Policy and Inflation in Israel

Gil Buifnan and Leonardo Leiderman
Additional contact information
Gil Buifnan: Bank of Israel
Leonardo Leiderman: Bank of Israel

No 1998.04, Bank of Israel Working Papers from Bank of Israel

Abstract: Monetary policy is the subject of sharp debate in Israel. Establishing a set of basic empirical regularities on these issues is a clear prerequisite for resolving these controversies. The purpose of this paper is to provide a body of empirical evidence on the role of monetary policy measures in the inflation process. Based on a sample of quarterly data from 1989 to 1997 we find that there is a close association between movements in the rate of inflation and shifts in monetary policy variables. The empirical results show that the impact of monetary policy variables-­such as the rate of change of Ml beyond the rate of growth of GDP and the ex-­ante real interest rate on Bank of Israel funds-­on the rate of inflation works with lags that peak at about two quarters after the change in the monetary variable. Moreover, a relatively simple inflation equation does a relatively satisfactory job at predicting­-in a one­-step­-aliead sense­-most recent quarterly movements in the rate of inflation. The empirical methodology was applied in order to account for the reduction in the rate of inflation from about 16-­18 percent in the period before 1991-­92 to about 10 percent per year thereafter. The paper quantifies various developments in key variables, such as fiscal, monetary, labor market, and external that combined to produce a decline in the rate of inflation.

Pages: 56 pages
Date: 1998-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_1998.04.pdf First version, 1998 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boi:wpaper:1998.04

Access Statistics for this paper

More papers in Bank of Israel Working Papers from Bank of Israel Contact information at EDIRC.
Bibliographic data for series maintained by Yossi Yakhin ().