Broadly speaking, the objective function has two components, each expressed as a deviation from a goal and each with a negative sign: one component is the deviation of inflation from its optimal level, and the other is the deviation of output (or employment) from its so-called natural level, the level that would be attained if prices and wages were completely flexible.
During the crisis, and especially after the bankruptcy of Lehman Brothers, inflation-linked markets were characterised by high volatility and low market liquidity, which made it very difficult for policy-makers to infer signals about the level of inflation expectations, as perceived by market participants.