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David Klein: The framework of Israel's economic policy for 2002 ...

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Topic: Economic Policy

Sort Desciption: regarding monetary policy has a preamble specifying the objectives of economic policy for 2001 and. mentioning three of them: ...

Content Inside: BIS Review 63/2001 1 David Klein: The framework of Israel's economic policy for 2002 Speech by Dr David Klein Governor of the Bank of Israel to The Financial Forum Tel-Aviv 11 July 2001. * * * Every year in the framework of the budget discussions the government passes two resolutions regarding macroeconomic policy for the coming year. If we take last year as an example on 16th August 2000 the government reached a decision (no. 2182) about Economic policy for 2001- budgetary aggregates-fiscal policy. This decision with no preamble determined: 1. The extent of the budget deficit for 2001 in absolute terms (NIS 8.2 billion) and as a share of GDP (1.75 percent); 2. The extent of government expenditure (NIS 194.2 billion); 3. The extent of the budget deficit for 2003 (1.25 percent of GDP). The next decision (no. 2183) on the same date refers to Economic policy for 2001-monetary policy. The approach to monetary policy differs from that to fiscal policy in two respects: First the decision regarding monetary policy has a preamble specifying the objectives of economic policy for 2001 and mentioning three of them: Maximizing the economys ability to grow on a sustainable basis; Increasing business-sector employment; The inflation targets for 2001 2002 and 2003 with the one for 2003 (1-3 percent) being defined as price stability There is no interest-rate target because there are other factors that also affect inflation. Hence no specific interest rate is invariably consistent with the inflation target and it must therefore change as the circumstances require. It is somewhat odd to regard monetary policy alone as having a role to play in determining growth employment and price stability targets keeping fiscal policy detached from them. In the past we proposed that the goals of macroeconomic policy should be presented as relevant also for fiscal policy and should feature in the preamble to both decisions. Second the two decisions-on fiscal and monetary poli ...

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