Flows into investment funds turned positive again in the subsequent months, quickly compensating for all the redemptions experienced in February and March. However, these flow dynamics imply that investment funds shed large volumes of assets procyclically, in the first quarter of the year, before becoming a net buyer again once market valuations started to recover.
The framework’s track record is impressive. Annual inflation has averaged almost exactly 2 per cent since 1991. Inflation has also been more stable, which has meant that unemployment and interest rates have become lower and more stable.