In this paper we attempt to reproduce both the business cycle facts and the equity premium of the Israeli economy—an economy which is "typical" in the sense that investment is much more volatile than output (and consumption). We show that GHH preferences, which are quite common in RBC models...

We show that the preferences suggested by Greenwood, Hercowitz and Huffman (GHH), which are quite common in real business cycle (RBC) models of small open economies, are not suited for reproducing both the business cycle and the equity premium facts of a small open economy. We show that by...

We formulate and estimate a small New Keynesian model for the Israeli economy. Our goal is to construct a small but still realistic model that can be used to support the inflation targeting process. The model contains three structural equations: An open economy Phillips curve for CPI inflation...

This study presents a small New Keynesian model of Israel’s economy describing the relationships among the main variables relevant to the transmission mechanism of monetary policy. The model encompasses three structural equations––for inflation, the output gap, and the exchange...