Quantifying Inflation Expectations with the Carlson-Parkin Method - a Survey-Based Determination of the Just Noticeable Difference
32 Pages Posted: 16 Dec 2005
Date Written: November 30, 2005
This paper presents a new methodology for the determination of the just noticeable difference which is required for the quantification of qualitative survey data. Traditional conversion methods, such as the probability approach of Carlson and Parkin (1975), the regression method of Pesaran (1984) or the time-varying parameters model of Seitz (1988), require very restrictive assumptions concerning the properties of the just noticeable difference and the expectations formation process of survey respondents. Our methodology avoids these assumptions. The novelty lies in the way the boundaries, inside of which survey respondents expect the variable under consideration to remain unchanged, are determined. Instead of deriving this so-called just noticeable difference from the qualitative survey responses and from the statistical properties of the reference time-series, we directly queried them from survey respondents by a special question in the Ifo World Economic Survey. The new methodology is then applied to expectations about the future development of inflation which are included in the Ifo World Economic Survey.
Keywords: Inflation Expectations, Survey Data, Quantification Methods
JEL Classification: C42, D84, E31
Suggested Citation: Suggested Citation