Investigating the monetary policy of central banks with assessment indicators

- Paper proposes new approach to capture policymakers' assessment of economic variables.
- Assessment indicators are generated via balance statistic from public communication.
- As showcase, novel approach is used to re-investigate Bundesbank's monetary policy.
- Bundesbank followed a strategy of flexible monetary targeting from 1975 to 1998.
- Assessment indicators contain information beyond standard macroeconomic.

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.