Working Paper

Protectionism in a liquidity trap

Kiel Working Papers, 2042

This paper studies the effects of protectionism as a business cycle instrument. In normal times, protectionism reduces international trade, distorts production and reduces output. However, in a liquidity trap protectionism lowers the real interest rate because inflation goes up while the nominal interest rate is stuck at the zero lower bound. This stimulates consumption and output.


Wolfgang Lechthaler - Kiel Institute
Wolfgang Lechthaler