The Governor of the Bank of Israel, unlike the heads of most central banks, has been assigned the formal role of the economic advisor to the government. This was the case in the original Bank of Israel (BOI) Law of 1954, and it continues in the newly legislated 2010 law. Thus, the policy research and analysis undertaken at the Bank is not limited to monetary and macroeconomic matters, but covers a wide range of policy issues. This chapter will describe and discuss the policy analysis carried out at the Research Department (RD) of the Bank of Israel. It begins with a description of the institutional and legal framework (the first section) and the description of the profile of researches (the second section). The next two sections then discusses the policy analysis performed to support the conduct of monetary policy within the framework of an inflation targeting regime and in support of financial stability and macroprudential analysis. The chapter then moves on to the analysis in support of the Governor's role as Economic Advisor to the Government (the fifth section) such as the analysis of fiscal policy and its dynamics, primarily from the perspective of fiscal aggregates (expenditure, taxes, deficits and debt), the analysis of labour markets, welfare and social services provision, and so on. The review covers both current analysis (that is, from a short-term perspective) and its evolution over time, and specific research projects aimed at in-depth analysis of various policy issues. The final section provides some concluding remarks.

Institutional and legal framework

The Bank of Israel was established in 1954 and according to the Bank of Israel Law, the Governor was assigned the unique role of an Economic Advisor to the government – ‘The Governor shall serve as adviser to the Government on currency and other economic matters’ (the BOI Law, 5714–1954).

Many believe that the unusual task for a central bank Governor was added because David Horowitz, the first Governor of the Bank of Israel, had served as Director General of the Ministry of Finance until the establishment of the Bank. It was also based on the expectation that the Bank could attract high level professionals for its Research Department.

Each Governor has had a somewhat different interpretation of the role of an economic advisor to the government, but nonetheless all served as active advisors.