This paper examines how disinflation in high inflation economies affects unemployment levels. According to Keynesian macroeconomic theories, a decrease in inflation will cause an increase in unemployment in the short run. Due to high inflation over the years among countries like Italy and Ireland, their expected inflation rate is significantly high. As a result, when the government starts a process of disinflation though restrictive fiscal and monetary policies, economic activity declines, and significant short run increase in unemployment follows.
Wan, Yuet Wen
"A Case of the Philips Curve in the Formation of a Monetary Union: A Glimpse at High Inflation Countries of the European Monetary Union,"
University Avenue Undergraduate Journal of Economics:
1, Article 4.
Available at: http://digitalcommons.iwu.edu/uauje/vol5/iss1/4