Equation (11.53) provides a clear statement of the beggar-thy-neighbour property of fiscal policy when both countries experience real wage rigidity.

Not surprisingly, monetary policy has no real effects under real wage rigidity. As none of the equilibrium conditions is affected, the interest rate, output levels, and the real exchange rate are also unaffected and the increase in m causes an (equal)

increase in the domestic price level and the nominal wage rate (dp = dw). Since the real exchange rate is unaffected, the nominal exchange rate depreciates by the full amount of the change in the domestic price (de = dp).

11.2.3 Real wage rigidity in Europe and nominal wage rigidity in the United States