Shepherd, who left his role at St. James' Park in 2007, believes that Carver would be the best man to replace Pardew, who left for Premier League rivals Crystal Palace earlier this month.
"It will be important to see what owner Mike Ashley decides to do," Shepherd told BBC Radio 5 live's Sportsweek. "I would keep John there until the end of the season and see how he does."
Shepherd believes that Carver knows the current squad, and that makes him a better candidate than the likes of Remi Garde or Bruno Labbadia, who have both been linked with the job in recent weeks, by local newspaper The Chronicle.
"There is a long way to go yet and you have to remember that it is not John Carver's team he is managing but Alan Pardew's," he added. "He knows the players and to bring somebody in now wouldn't help the team because I don't think they are going to buy anybody in January."
Shepherd also stated that Carver - a Newcastle native - would be well appreciated by the Magpies faithful, and admitted that he made an error not appointing the 50-year-old after the sacking of Sir Bobby Robson in 2004.
"I made one big mistake when Sir Bobby Robson left in 2004 - I should have tried John by giving him the job but I didn't and Graeme Souness came in," Shepherd revealed.
So far, Carver has taken charge of four games, and has lost three of those, picking up just one point - and in that, Newcastle threw away a lead three times to draw 3-3 with Burnley.