Journal Article

Protectionism in a liquidity trap

Author

  • Wolfgang Lechthaler
Publication Date

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.

Info

JEL Classification
E12, E60, F13

Key Words

  • business cycle policy
  • Liquidity trap
  • Protectionism