Prof. Amir Yaron, Governor of the Bank of Israel (Shutterstock photo, Flash 90/ Yonatan Zindel)
Today, the Bank of Israel is doing the most necessary and responsible thing it can do, and that is to publish the forecasts of its research department for the coming period. Naturally, the economic effects of the laws of the legal revolution are on the agenda. The research division of the Bank of Israel produces two forecasts, one if the impact of the legal revolution will be moderate and the other if the effects will be more severe.
The data shows that in the event that the impact of the laws of the legal revolution will be moderate and fade away relatively quickly, there will be an average damage of 0.8% of GDP each year over the next three years. “In the scenario characterized by a higher persistence of the shocks, an injury of about 2.8% of the GDP is received on average for each year in the next three years.”
More in-
The research division of the Bank of Israel explains that the main decrease in GDP, in this case (the more difficult), results from a significant damage to investment in the economy, due to the increase in uncertainties and the risk premium. The devaluation slightly mitigates the damage to exports in the three years under review, however the significant reduction in investment, and as a result the damage to the capital stock and production capacity of the economy, is expected to deepen the damage to exports and GDP in the more distant future.
In this scenario, private consumption is also significantly affected, due to the increase in uncertainty and the increase in interest rates in the economy due to the increase in the risk premium. The degree of damage to activity and growth obviously depends on the size of the shocks in these channels in response to changes in legislation.
“The framework we use is based on a linear model. Therefore, a shock of twice the intensity will manifest itself in a double damage to GDP. On the other hand, if the shocks to the risk premium, to export demand and to domestic demand are smaller, the damage to GDP will also be correspondingly smaller. At the same time, it is possible that in a situation where the shocks are relatively large and are perceived as persistent, the response of the economic variables will be above and beyond the estimate that corresponds to the existing estimate” write in the bank’s research division.
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