Abstract
This paper derives microeconomic implications of an increase in inflation uncertainty for a firm's demand for capital and labor resources. The concern for this topic is motivated by an interest in the effect of inflation uncertainty on the demand for labor and especially the Phillips curve. The basic idea is that an increase in the actual inflation rate increases inflation uncertainty with respect to the rental price of capital relative to that of labor, which in turn increases the demand for labor, both absolutely and relative to the capital stock. The result is a decline in unemployment.
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