Protectionism in a liquidity trap

Authors

• Lechthaler
• W.

Publication Date

JEL Classification

Key Words

Related Topics

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.