’ s failures. thus, if we continue to pursue a fully integrated global market with widely harmonised rules, we would have to give up either our national sovereignty or our democratic ability to oppose global rules. however, democracy is not on the table ; and i think it is fair to say that brexit and the rise of populism have taught us that our societies are not ready to renounce national sovereignty. what remains, then, is to limit global market liberalisation. but how? normally, it is bad marketing to start with what your product cannot do – nevertheless, i want to clarify what limiting globalisation does not mean. it does not mean that we should end foreign diplomacy and multilateral international politics ; nor should we stop fostering mutual understanding and the friendship of nations. it likewise does not exclude economic policy coordination in times of crisis – which was quite successful during the last financial crisis. and finally, it does not mean that we should resort to mercantilist policies of rebuilding tariffs around special interest groups. 3 / 7 bis central bankers'speeches so what then? the answer is that we must devise a stronger set of rules that limit the negative repercussions of free markets. this solution has a national and a global component, where greater attention has to be placed on the national approach than was the case in the past four decades. i want to emphasise three policy elements. first, countries themselves have to decide what level of compensation they want to provide to those who lose out from globalisation. second, each society has to reconsider the cases in which certain limits to global markets would make sense. this would most likely result in more limits to international economic activity, and it could lead to more institutional, legal and regulatory diversity between countries with different histories and different preferences. but there will still be substantial room for the global dimension. so the third policy element of the future globalisation framework is continued – but less, and focused – harmonisation. it is my opinion that we should focus our harmonisation efforts on certain meaningful and legitimate minimum standards. you could call this “ globalisation on a leash ”. i prefer the expression “ focused harmonisation ” : sovereign countries carefully select the suitable areas and respect where other nations see their own vital interests at risk. this means that we have to ask in what areas global liberalisation and harmonisation is meaningful and how far they should go – and in many areas the answer might be that less is more ; that

to try to bring the rate back gradually within the range, and if possible to the midpoint of the range, with a one year forward horizon. the underlying reason for this approach is to avoid causing inflation volatility by sharp changes in the interest rate. take the following situation as a hypothetical example : the bank of israel is acting to keep inflation in the next twelve months close to the midpoint of the target, i. e., 2 percent a year. but let us say that in the next ten months the rolling twelve - month inflation rate is below the lower limit of the range because of the drop in the index of 1. 5 percent in september and october mentioned above. we may only see the twelve - month retrospective inflation rate within the target when those two months have dropped out of the calculation. we could have acted differently and reduced the interest rate drastically to bring inflation back within the target much more quickly, but then we could have created an unstable process of overshooting in the opposite direction, with inflation exceeding the target. it is therefore not worthwhile reacting to every shock as it occurs, but it is preferable to persist with the policy of gradually reverting to the inflation target within a year. b. the openness of the economy now to my main topic for today, the openness of israel ’ s economy to the global economy. this is an important issue because economic openness is a new reality that affects all of us, but we may not have internalized it in all areas. this conference, and others like it, take pride in the many and important participants from abroad, and this provides one indication of the new reality in which we live. israel was one of the first countries to realize that a small economy cannot grow without being open to and participating in the global economy. as early as the 1960s we set out on the path of liberalization of international trade. but the program of exposing the economy to abroad in the mid - 1980s and the liberalization of the foreign currency market and capital flows initiated by the bank of israel in the 1990s were the most significant aspects of this process. it was not just that they opened the economy to the global economy, but they created a framework for macroeconomic policy that operates according to the norms accepted in the advanced economies, based on budget and inflation targeting. this provides the infrastructure that enables the economy to achieve sustained growth, provided that the policymakers know how to face the challenges that it places before them. this