the exchange rate affects both inflation – despite the fact that the transmission from the exchange rate to inflation is lower today than it was in the past – and economic activity, due to the exchange rate ’ s effect on the tradable sector. the exchange rate is obviously something we know in real time, and as opposed to other data that i will mention, it is not updated. the housing market is obviously part of the picture that we deal with in determining monetary policy, both on the inflation side – where most of the emphasis is on the rental index, which reflects the price of housing services – and on the financial stability side. we know that the volume of housing credit is constantly increasing, and that its share of total bank credit is also increasing. in this context, the increase in housing process and the rapid increase in the volume of mortgages made it necessary for the supervisor of banks to adopt a series of measures to reduce the risk inherent to housing loans, as part of maintaining financial stability and – first and foremost – the ability of borrowers to meet the commitments they take upon themselves. later on, i will illustrate the uncertainty surrounding the real economic situation when making decisions. it is important to emphasize that this uncertainty is built into managing policy by the very fact that data on economic activity at any given moment are obtained with a lag and bis central bankers ’ speeches updated later. with that, there are periods, such as the current period, where various data provide a contradicting picture of the situation, leading to a particularly high level of uncertainty. the main figure that we track is obviously the national accounts data, which outlines growth of gdp and its components. the intensity of the updates in the data is shown by the gap between the initial estimate of growth in a given quarter and the estimate published a year later. for instance, in the third quarter of 2008, the initial estimate pointed to growth of 2. 3 percent, and a year later it became clear that growth was just 0. 8 percent. likewise, growth in the second quarter of 2010, according to the initial estimate, was 3. 3 percent, and a year later it was 5. 2 percent. with that, we can also see that the updates do not systematically tend toward one direction or another. the average of the updates is close to zero. it should also be noted that the updates in israel are not exceptional by international comparison, and are even relatively low. as such, the challenge of dealing with uncertainty is one we

has operated a framework in which the forecast is updated on a regular basis each quarter, so that policy operates on the basis of the most up - to - date picture and forecast. in retrospect, despite the need to compile the picture and forecast on the basis of partial and delayed data, policy decisions have been made in a timely manner such that they assist the economy in dealing with shocks. this was the case in the rapid response of the interest rate to the beginning of the global crisis, and this was the case with the renewal of the crisis due to the slowdown that resulted from the european debt crisis. in summation, monetary policy relies on a picture compiled on the basis of partial data, which are received with a lag, which are updated, and which change. it also relies on a global picture that is constantly changing. the challenge faced by policy makers is to formulate a bis central bankers ’ speeches picture and forecast based on these data by using models and experience and accumulated professional knowledge. the challenge in making policy decisions is the need to remain ahead of the curve in achieving balance between the effects, in view of the lags in the effect of monetary policy, and the measured response to real developments rather than the “ noise ” in the data. despite the challenge in making policy decisions in conditions of uncertainty, an assessment of the policy measures in retrospect shows that the professional tools and accumulated experience make it possible for the monetary committee to formulate a picture and make decisions in real time to attain the objectives of policy for the good of the economy. bis central bankers ’ speeches