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Protectionism in a liquidity trap

Wolfgang Lechthaler

Economics Letters, 2016, vol. 145, issue C, 165-167

Abstract: 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.

Keywords: Business cycle policy; Protectionism; Liquidity trap (search for similar items in EconPapers)
Date: 2016
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