Governments, worldwide, control the issuance of domestic money. That monopoly position creates the problem of determining how much money to print.

There is always a temptation to print money in the short term in order to create the illusion of greater production and prosperity than really exists, but experience shows this is a difficult process to reverse and a costly one not to reverse.

Economists in New Zealand in the last two decades have generally agreed that monetary policy should be directed at keeping inflation low. Yet this acquiescence does not rule out the possibility that targeting monetary policy at some other objective – such as achieving a lower exchange rate – for a short spell might have beneficial effects, without compromising the low-inflation goal.

Since the early 2000s, New Zealand’s firms exposed to international competition have shown a troubling loss of competitiveness, despite high export prices relative to import prices. The thought is never far away that ‘smart’ tweaking of monetary policy might be able to produce a ‘competitive devaluation’ that would ease this problem in the short term without compromising the medium-term inflation objective.

Last month, the Reserve Bank and Treasury hosted a forum aimed at examining monetary policy and exchange rate issues relevant to New Zealand. They invited a broad range of participants with relevant expertise to explore issues from different angles.

A variety of papers were presented by Reserve Bank and Treasury staff, which were then discussed and debated by the forum participants. These papers and a summary by John McDermott, Reserve Bank assistant governor and head of economics are available online.

My reading of the gist of the papers was that international competitiveness is not about the price level (which is where monetary policy comes in) but about the price level relative to wages and productivity. A great many factors can affect productivity and prices relative to wage rates, many of which have little to do with monetary policy.

There was also considerable pessimism about the ability of non-traditional monetary instruments to make much of a difference.

The bottom line for me is that governments have done much to impair competitiveness – but they have done so through spending, taxes, and regulations rather than through monetary policy.