Inference Using Qualitative and Quantitative Information with an Application to Monetary Policy.

The author proposes a framework for drawing inferences about an unobserved variable using qualitative and quantitative information. Using this framework, he studies the timing and persistence of monetary policy regimes and computes probabilistic measures of the qualitative indicator's reliability. These estimates suggest that it is over one and one-half times more likely that monetary policy is not restrictive at any point in time; John Boschen and Leonard Mills's {1995} policy index is a reliable indicator of the stance of monetary policy; and certain qualitative indicators of monetary policy improve interest rate forecasts that are based on linear forecasting models. Copyright 1998 by Oxford University Press.