Is There a Long-Term Effect of Inflation Uncertainty on Unemployment?

Yaron Zelekha

The IUP Journal of Monetary Economics, 2010, vol. VIII, issue 1 & 2, 45-53

Abstract: The unique Israeli capital market, which enables extraction of direct inflation expectations and unexpected inflation, is a comfortable setting to test Milton Friedman’s hypothesis according to which inflation uncertainty positively affects unemployment in periods of time which vary from the short-term. The findings of this study are the first to provide significant empirical support for this hypothesis. The results reflect the medium-term trends and that the transfer mechanisms through which uncertainty affects unemployment are mainly private consumption and to a lesser degree private investment. This interpretation is consistent with the accepted theory, according to which in the very long-term uncertainty is less relevant.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjmo:v:08:y:2010:i:1&2:p:45-53

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