INFERENCE USING QUALITATIVE AND QUANTITATIVE INFORMATION WITH AN APPLICATION TO MONETARY-POLICY

I propose a framework for drawing inferences about an unobserved varia ble using qualitative and quantitative information. Using this framewo rk, I study the tinting and persistence of monetary policy regimes and compute probabilistic measures of the qualitative indicator's reliabi lity. These estimates suggest that (I) it is over one and one-half tim es more likely that monetary policy is not restrictive at any point in time, (2) Boschen and Mills's [1995] policy index is a reliable indic ator of the stance of monetary policy and (3) certain qualitative indi cators of monetary policy improve interest rate forecasts that are bas ed on linear forecasting models.