stanley fischer : the israeli economy acceptance speech by professor stanley fischer, governor of the bank of israel, for an honorary degree, hebrew university, jerusalem, 11 june 2006. * * * it is a pleasure and an honor for me to speak today as the recipient of an honorary doctorate of philosophy from the hebrew university, and it is an even greater honor to have been asked to speak on behalf of my distinguished fellow honorees. i would like to start by congratulating the students on whom doctoral degrees are being bestowed today. you have earned the congratulations and good wishes of all for the ability and dedication you have shown in completing your doctorates, and we wish you every success and happiness in your future careers. by european and american standards, this is a young university. its founding ceremony took place in 1925, at this spot, in the presence of lord balfour, viscount allenby, high commissioner herbert samuel, haim nachman bialik, nahum sokolov, harav kook, harav meir, and 10, 000 others. that extraordinary turnout testifies to the importance the inhabitants of the yishuv and of the zionist movement attached to the founding of what they called the university of the jewish people. the university already possesses a proud history, an essential part of the history of modern israel, of the history of the jewish people and their successful but ongoing struggle to establish a modern state in the ancient land of our forefathers. each of the honorary degree recipients here has been closely associated with the hebrew university in the past, and for each of us this day brings back memories, of times, of colleagues, of friends. in my case among the personal memories are those of don patinkin, former president of the university, of yoram ben - porath, also a former president of the university, and of michael bruno, former governor of the bank of israel. and for many of us, this spot and this occasion will always be associated with the image of yitzhak rabin, receiving an honorary degree from the university immediately after the six day war. for me, the hebrew university has always been special. when i graduated from the london school of economics it was at the hebrew university that i most hoped to teach. later i did teach here, but as a visitor on sabbaticals, not as a faculty member. this is the community in which rhoda and i have formed some of our firmest and most lasting friendships. each

to look at the price of credit, and for this purpose, we will assess the tel bond spreads. if the lack of growth in credit was a result of a lack of supply, we would expect to see an increase in the price of credit. in contrast, we see a decline in the spreads, which points to a situation of a lack of demand for credit. another interesting phenomenon is the spread between the short - term interest rate and the long - term interest rate, which is relatively high over time in israel. in each period, there was apparently a different explanation for the relatively high spread in israel. in 2000, the period was the beginning of large shahar 10 - year bond issuances, and there were still concerns of inflation, which could have led to higher spreads. afterward, in 2006 – 07, there was an extraordinary boom period abroad, with much less here, so the spreads were perhaps greater in israel. even if the explanation is different for each period, it apparently reflects a higher long - term premium in israel, meaning that despite the decline in the monetary interest rate, the long - term risk in israel is apparently greater than in the rest of the world. there are price increases in the stock market, no different than what we see in other countries. in summation, when we look at the bank of israel ’ s three objectives, the low inflation is apparently partly due to imported inflation from abroad. the picture of real economic activity is unclear, with some negative and some positive indicators, particularly in the first quarter. in terms of leverage, there are high levels of housing credit, but we don ’ t see very high levels of leverage in the overall economy that could lead to a dangerous path. summing up all of these components, the monetary committee decided to leave the interest rate unchanged this month. bis central bankers ’ speeches