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

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  • Yaron Zelekha

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.

Suggested Citation

  • Yaron Zelekha, 2010. "Is There a Long-Term Effect of Inflation Uncertainty on Unemployment?," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(1 & 2), pages 45-53, February .
    • Handle: RePEc:icf:icfjmo:v:08:y:2010:i:1&2:p:45-53
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