This may seem a very odd question, since I have already acknowledged that the main factor driving up the exchange rate in the mid-nineties was the need to tighten monetary policy to head off the inflationary pressures caused by demand growing faster than the potential of the New Zealand economy to meet that demand.
This pushed up not only the nominal exchange rate, but also the real (inflation-adjusted) exchange rate. But suppose the Reserve Bank had acted differently. Would matters have been much different? The answer is ‘almost certainly not’. Suppose the Bank had not tightened monetary policy.