| Sumario: | This article constructs a disequilibrium model that traces out the long-run time path of different exchange-rate regimes. It assumes that the money wage adjusts slowly and transactions can occur at labor market disequilibrium. Unemployment generated from this type of economic behavior is typically involuntary. The article begins with the development of analytical framework of the model. It then analyzes the short-run level of unemployment for each exchange-rate regime and examines the long-run time paths for each regime. The article considers a simplified analytical framework which deals with 5 economic goods, a nontraded good, an import good, an export good, money, and labor services. There are four markets, the home good market, the foreign exchange market, the money market, and the labor market. There is no investment demand and no international capital flows. A two-stage adjustment process is also assumed. In the first stage, a short time interval is used in which the price of home goods adjusts to clear the home good market, and either the exchange rate or money stock in the respective free or fixed exchange-rate regime adjusts to clear the balance of payments. In the second stage, a long time horizon is used during which the nominal wage is allowed to adjust to clear the labor market.
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