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.