However, due to the lack of specific guidelines on dealing with such circumstances, reporting entities had to conduct fair value measurement on the basis of unreasonable market prices, which magnified book losses and exacerbated the vicious cycle. We could say, in a normal situation or in a low frequency band, mark-to-market is a negative feedback loop.
Central banks now target inflation outcomes, either as a primary objective (in inflation-targeting regimes such as New Zealand’s), or alongside other objectives (as in the case of the US Federal Reserve). This approach has been successful in keeping inflation outcomes within a narrow target range, resulting in lower inflation volatility (figure 2).