A critical re-examination of the Carlson-Parkin method

The euro area has been experiencing a long period of inflation well below the targeted 2%. This has once again brought the problem of quantifying inflation expectations into the scientific focus. Within the framework of the Carlson-Parkin (CP) method, previous research has mostly focused on altering the probability distributions. Analysing as much as 2688 versions of the CP method, we prove that the distribution choice provides only minor improvements in the forecasting accuracy. On the other hand, the method assumptions (unbiased expectations and the number of survey response categories) play the pivotal role. We make an attempt to provide an assumptions-free quantification method by recognizing the fact that agents perceive moderate' inflation through the inflation targeting policy.