the central bank and the public in general, and the financial markets in particular, and constitutes an important mechanism of control over the central bank, its management and its policies. it enables the central bank to stay attuned to public criticism, and it enables the public to better understand the functions, policy, decisions and achievements of the central bank. the two subjects i have spoken about so far, central bank independence and the requirement for transparency and accountability incumbent on the central bank lead me to my main subject this evening. 3. the new law for the bank of israel the current bank of israel law dates back to 1954, and is not appropriate either to the current reality of israel ’ s modern economy, or to the global economy. although amendments have been introduced into the law that grant the bank of israel a greater measure of independence, in particular the “ no printing law ”, the bank ’ s de jure independence is more restricted than its de facto independence. it is therefore important to bridge the gap by passing a new law that will provide a proper legal basis for the reality that has been created. the new law will clearly define the independence of the bank, its goals, and the mechanisms for decision making, and should impose on the bank a comprehensive framework of transparency and accountability. the new law should thus contain the correct mixture of independence, transparency and control mechanisms for the bank of israel, according to the generally accepted standards in the advanced economies. in my first few months as governor of the bank we cooperated with the ministry of finance, the prime minister ’ s office and the ministry of justice in producing a bill. we made good progress, but decided to shelve the matter until a new bank of israel wage agreement was reached, and that took longer than we had anticipated. we are now reverting to this issue, and i hope that we will soon have a final version. a. independence the new law will give the bank of israel instrumental independence, i. e., independence in making the decisions on the interest rate as needed to perform its functions and reach its goals. and as i stated above, this independence must also be reflected in the management of the bank. b. defining the targets the new law should clearly define the bank of israel ’ s targets, along the lines of the targets of other modern central banks. the modern approach, and that adopted in the major central banks such as the bank of england and the ecb, generally define three targets, and determines their

rate of world trade is expected to moderate even more due to the weakening link between global growth and the development of world trade. in israel, the combination of demographic trends ( an increase in the proportion of population groups with relatively low employment rates and a slowdown in growth of the primary working age population ) alongside the fact that the contribution of increased education, as reflected in the average number of years of schooling, has neared its limit, will act to slow the future growth rate. active policy is therefore needed to offset these trends. against the background of these future trends, it is important to examine the labor productivity trends of recent years and the directions in which policy must act in order to deal with the challenges. in terms of productivity – measured as output per work hour – we are not closing the gap with the other advanced economies, even during the period since the global crisis. this gap between output per worker in these industries in israel and output per worker in the same industries in the other advanced economies, is focused mainly on industries that manufacture mainly for the domestic market, which are by their character domestic industries, and are therefore not exposed to competition from abroad. it is important to know that these are industries that produce most of the output, and also employ the vast majority of workers, in the economy. the discussion on productivity seems very theoretical. but to illustrate, if we would close the productivity gap vis - a - vis the oecd average, we would raise the standard of living by about one - third – about the increase that we would receive in per capita gdp. in this context, let us for example take the construction industry, which employs about 7. 5 percent of those employed in the business sector – clearly a domestic industry – and bis central bankers ’ speeches examine the output per worker in the industry over a long period. productivity in the industry declined in the 1970s and 1980s, and remained at a standstill since the 1990s, in contrast with an increase in manufacturing productivity that accelerated following the program to expose the israeli economy to foreign manufacturing imports in the 1990s ( the exposure program ), and the agriculture industry where there was a moderate increase in productivity throughout the period. the construction industry “ benefits ” from the availability of foreign workers with wages lower than domestic workers with the same characteristics, and therefore suffers from a significant technological lag. the recent government decision to allow foreign construction companies to enter residential construction projects, if it is implemented to a significant extent, may contribute to a turnaround in the productivity