such an uncertain environment. this is perhaps the place to mention the famous statement by my colleague janet yelin, chairman of the federal reserve, who tried to convince the markets that the policy adopted by the fed is data dependent, meaning that it is not set in advance, but is based on currently published data. i hope that i have succeeded in illustrating how challenging it is to determine policy based on data in view of the fact that the data are subject to significant revisions. if even the past is still before us, is there a reason to try forecasting the future? forecasting is a necessary tool for policy makers in any field, and policy makers need to examine the scenario in accordance with an assessment of the cost or damage involved in adopting a given policy path. we must assess the likelihood of the realization of various scenarios, what the result of adopting a given policy will be along various paths, and particularly, the risks against which the policy must protect. for instance : planners in the education system need to assess how many children will live in a given locality, the margin of error of the forecast, and the damage that would occur if not enough classrooms are built against the cost of building too many classrooms. the defense establishment must assess the reference scenario for the threats we face, the damage resulting from an under - assessment, and the cost of an over - assessment. the financial supervisory authorities must assess the extent of damage from a financial crisis compared to the economic cost of security buffers that are too deep. monetary policy makers must use the best tools available to them to assess the forces acting on the economy and what direction their effect is expected to take, and formulate a picture of the future situation based on data, models, experience and know - how in order to set the policy path. policy management must take into account the margin of uncertainty, and decide the correct weight to attribute to various possible scenarios. in order to make monetary policy effective, a balance is required between the need to be ahead of the curve in view of the lags in the effect of monetary policy, and the need to respond immediately to real developments rather than the “ noise ” in the data. so after all the warnings about forecasting, the time has come to present the forecast. the bank of israel research department formulates a forecast of the economic environment every quarter, based on models, information, and forecasts of the global economy, and the data ( the best that can be obtained ) describing the recent developments in the

stanley fischer : challenges facing the israeli economy remarks by professor stanley fischer, governor of the bank of israel, upon taking leave of the knesset finance committee, jerusalem, 4 june 2013. * * * i would like to thank the members of the committee for their wishes. it was an honor for me to serve as governor of the bank of israel. it was not readily apparent that they would offer the position to someone who was not a citizen of israel. but in the end, that is what happened, and my wife and i are very happy for the extraordinary opportunity that we had. many people on the professional team at the bank of israel helped me during this period, contributing much to the work at the bank during my term of office. we must not forget that i arrived in 2005, when the economy was in the midst of a period of impressive growth, and one of the reasons for the fact that we made it through the global crisis was that the economy entered the crisis in good condition : the government budget was balanced in 2007, the current account was in surplus, the banks were strong — everything required for a country to successfully get through the crisis was in place in israel before the crisis. i would also like to thank the former chairman of the finance committee, mk rabbi moshe gafni, who contributed much to the system ’ s stability, and to the legislation of the new bank of israel law, which was also helped along by former knesset speaker mk reuven rivlin. i recognize the fact that you cannot work alone — it is necessary for there to be people who agree to work with you, and in this context, i also note the opposition leader who is here, who was then in the coalition and who assisted with the passage of the law. if i compare the situation of the economy today to what it was in 2005, the debt - to - gdp ratio is much lower, although the government deficit is higher. we moved to a situation where the current account is balanced compared to the surplus we were in before the crisis. the unemployment rate today is very low in an historic perspective, and the employment rate is higher. the incidence of poverty remains more or less at the same level as it was. the exchange rate is more appreciated today, which to a large extent is a result of the strength of the economy — people want to live in a strong economy with a weak exchange rate, but this is a situation that generally does not happen. the foreign exchange reserves are obviously much higher