Investigating the Monetary Policy of Central Banks with Assessment Indicators

This paper proposes a new approach to use qualitative information for investigating central banks' monetary policy strategy. Quantitative assessment indicators which are generated from a central bank's public statement with the balance statistic method are used to estimate Taylor-type rules. This procedure allows to directly capture a policymaker's assessment of macroeconomic variables which are relevant for the decision making process. As an application of the proposed method, a novel real time data set consisting of assessment indicators for the Bundesbank is generated to re-investigate its monetary policy. The analysis provides evidence that (i) the Bundesbank was a flexible monetary targeter and (ii) that the proposed indicator variables contain information beyond that of standard macroeconomic variables used in monetary policy analysis.