Working Paper

Protectionism in a liquidity trap

Kiel Working Papers, 2042

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Authors

Lechthaler
W.

Publication Date

06/2016

JEL Classification

E12 E60 F13

Key Words

business cycle policy

Liquidity trap

Protectionism

Related Topics

Business Cycle

Business Cycle World

Globalization

Growth

International Trade

Tax Policy

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.

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