INFERENCE USING QUALITATIVE AND QUANTITATIVE INFORMATION WITH AN APPLICATION TO MONETARY POLICY |
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Authors: | PHILIP N. JEFFERSON |
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Affiliation: | Associate Professor, Department of Economics, Swarthmore College, Pa., Phone I-610–690-6856 Fax 1–610-328-7352 E-mail |
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Abstract: | I propose a framework for drawing inferences about an unobserved variable using qualitative and quantitative information. Using this framework, I study the timing and persistence of monetary policy regimes and compute probabilistic measures of the qualitative indicator's reliability. These estimates suggest that (1) it is over one and one-half times more likely that monetary policy is not restrictive at any point in time, (2) Boschen and Mills's [1995] policy index is a reliable indicator of the stance of monetary policy, and (3) certain qualitative indicators of monetary policy improve interest rate forecasts that are based on linear forecasting models. (JEL C22, E52) |
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