IMF Working Papers

The Israeli Structural Model

By Daniel Baksa, Yotam Peterfreund, Nadav Poloder, Ivy Sabuga, Tanya Slobodnitsky, Luis-Felipe Zanna

October 24, 2025

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Format: Chicago

Daniel Baksa, Yotam Peterfreund, Nadav Poloder, Ivy Sabuga, Tanya Slobodnitsky, and Luis-Felipe Zanna. "The Israeli Structural Model", IMF Working Papers 2025, 213 (2025), accessed October 25, 2025, https://doi.org/10.5089/9798229028622.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper introduces the Israeli Structural Model (ISM), a New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) model tailored to reflect key characteristics of the Israeli economy. The ISM incorporates diverse consumer saving behaviors and labor skills, a dynamic high-tech (HT) sector, international trade and capital integration, and comprehensive fiscal components. As an integral part of the Ministry of Finance’s (MOF) Forecasting and Policy Analysis System (FPAS), the ISM serves as a macroeconomic policy scenario analysis tool, aiding in policy discussions and decision-making. This paper illustrates the ISM's policy use by evaluating strategies for utilizing additional government revenue generated from the HT sector boom in 2022 and their macroeconomic impacts. It compares three policy options: accelerated public debt reduction, redistribution through transfers, and increased public investment. The findings indicate that increased public investment is the most beneficial strategy, in the aftermath of the COVID-19 pandemic, accelerating GDP's convergence to its trend, reducing public debt to GDP ratios, and mitigating real appreciation and the impact on the most vulnerable population.

Subject: Commodities, Consumption, Expenditure, Foreign exchange, Imports, Inflation, International trade, Labor, National accounts, Oil, Prices, Public debt, Public investment spending, Real exchange rates, Skilled labor

Keywords: Consumption, DSGE Model, Exports, External debt, Fiscal Policy, Forecasting and Policy Analysis System, Global, Imports, Inflation, Israel, Monetary Policy, Oil, Public investment spending, Real exchange rates, Skilled labor

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