The Israeli Structural Model

IMF Working Papers, October 24, 2025

Source details

Authors: Daniel Baksa, Yotam Peterfreund, Nadav Podoler, Ivy Sabuga, Tanya Slobodnitsky, Luis-Felipe Zanna
Published: October 24, 2025
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798229028622.001

The ISM is a New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) model tailored to reflect key characteristics of the Israeli economy.
Key model components:
- Diverse consumer saving behaviors and labor skills.
- A dynamic high-tech (HT) sector.
- International trade and capital integration.
- Comprehensive fiscal components.
The ISM is integrated into the Ministry of Finance’s (MOF) Forecasting and Policy Analysis System (FPAS) as a macroeconomic policy scenario analysis tool.

The paper illustrates ISM’s policy use by evaluating strategies for utilizing additional government revenue generated from the HT sector boom in 2022.
Three policy options compared:
- Accelerated public debt reduction.
- Redistribution through transfers.
- Increased public investment.

Main comparative conclusion:
- Increased public investment is identified as the most beneficial strategy in the aftermath of the COVID-19 pandemic.
Effects of increased public investment (as found in the paper):
- Accelerates GDP's convergence to its trend.
- Reduces public debt to GDP ratios.
- Mitigates real appreciation.
- Mitigates the impact on the most vulnerable population.
Comparative implications of other options (summarized from analysis):
- Accelerated public debt reduction and redistribution through transfers are evaluated but found less effective than increased public investment on the listed macroeconomic objectives.

Subject areas: Commodities, Consumption, COVID-19, Health, National accounts, Oil, Public debt.
Keywords: Consumption, COVID-19, DSGE Model, Fiscal Policy, Forecasting and Policy Analysis System, Global, IMF working papers, Ism's policy use, Israel, Monetary Policy, monetary policy Paramaters, Oil, policy option, transfer Policy.