but also to avoid the unwarranted impact on export industries, particularly of goods which tend to be more sensitive to the exchange rate. one could look at it as the qe of small open economies. a year passed, and still the inflation rate was below target and still in negative territory and we observed that the same forces were at play, and expected to continue to be due to the global economic and monetary environment and because of our own domestic conditions. it was clear that we needed to show our patience with the price environment. we did so by introducing nonconditional forward guidance – there were clearly too many elements behind the low inflation to allow us to turn some into conditions – which we reiterated more recently, and in our view was correctly interpreted by the market. patience has its virtue but must not be confused with inaction, the boi has been patient with inflation to return, but quite active to ensure that the crucial broader environment of price stability remains intact. inflation expectations of the medium and longer term are still well anchored within the target range bestowing credibility to the monetary policy. to conclude in the spirit of this forward looking conference, i would draw 3 points from the recent israeli experience. first, protracted periods of below target inflation do not entail an automatic loss of monetary policy credibility. for the latter to be maintained, we need to better understand, and better explain, how the transmission mechanisms operate – through short term interest rates, long term rates, exchange rate and asset prices. this will lead us to use more tools and more targeted tools when available. second, the israeli experience does not lead to the need of changing the inflation target : an important anchor for the economy must not be amenable to easy change unless there is strong evidence that it is no longer at the appropriate level. inflation in israel is also strongly impacted by global inflation, and while the debate on changing the inflation target is also taking place globally, there is no reason for israel to be a pioneer in this change, if the change takes place. third, monetary policy must take into account financial conditions as signaled daily, if not hourly by the markets, but as upholder of a necessary and crucial nominal anchor it must be able to withstand noise and remain forward looking. this in turn requires the central bank to engage in discussions and better explain its interpretation of sometimes contradictory data on the one hand, and to withstand “ flavor of the day ” pressures. “ 2 / 2 bis central bankers'speeches

is even more the case when there is no general consensus on the matter of fiscal discipline. we sometimes speak of changes in economic policy, and such changes were essential to developments in the last fifteen years. we must however recognize one important fact : growth derives from the increase in the private sector, and in israel we have a private sector that in the main is successful, innovative and creative. it is a private sector that day after day proves its ability to compete in the world. israel ’ s economy is very open to the world, and this is reflected in various ways : 1. in the current decade ( 2000 – 06 ) the share of exports in gdp has reached an average of about 40 percent. 2. in the same period the share of imports in gdp has reached an average of about 41 percent. 3. foreign investments in israel reached about $ 17 billion in january – october 2006, an all - time peak. 4. israelis ’ investments abroad in january – november 2006 reached about $ 21 billion, of which some $ 12 billion were direct investments. 5. israel is in second place ( after the us ) in terms of the number of companies listed for trading on the nasdaq. what is required of an economy that is open to competition from around the world? there are still areas in which we ought to improve, and here i will refer to aspects in the microeconomic sphere. in this context i would like to mention the doing business report of the world bank, which grades countries according to the ease of doing business in them. israel is listed 26 out of 175, not bad at all. but if we look at the different components that go into this grading, we will see that we were good in certain aspects ( investor protection, obtaining credit, international trade, opening and closing a business ), but we scored very badly in others ( obtaining licenses, enforcing contracts and registering assets ). it is very important that we take steps to improve in these areas in order to contribute to a better business environment. we generally relate to these areas as if they are important for foreign investors. but they are important for all investors in israel ’ s economy, domestic and foreign. every israeli investor has the choice of investing abroad. if we do not improve the atmosphere surrounding investment in israel, we are likely to lose some domestic investments of israeli investors ’. c. the oecd the subject of the openness of israel ’ s economy brings me to the question of israel ’ s joining the o