Is there a long-term effect of inflation uncertainty on unemployment?

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 sh...

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Bibliographic Details
Published in:The ICFAI journal of monetary economics 2010-02, Vol.VIII (1-2), p.45-53
Main Author: Zelekha, Yaron
Format: Article
Language:English
Subjects:
Inflation expectations
Inflation rate
Inflation theory
Israel
Macroeconomics
Monetary economics
Stock exchange
Uncertainty
Unemployment
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Summary: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.
ISSN:0972-9291