Inflation uncertainty, employment and wage for Canada

Abstract

This paper explores whether inflation surprise, uncertain or unexpected inflation affect the real wage rate and the employment of the Canadian economy. Using a partial equilibrium model of the labor market and the quarterly observations of the relevant macroeconomic variables from 1964:1 to 1988:2, it was found that unexpected inflation affects the real wage and employment, but the impact of the inflation surprise is not statistically significant. This empirical exercise suggests the potential importance of the supply shocks on Canadian economy during this time period.