IDEAS home Printed from
   My bibliography  Save this paper

Trade Policy and Structural Reforms at the Zero Lower Bound: Lessons Learned and Suggestions for Europe


  • Alessandro Barattieri
  • Matteo Cacciatore
  • Francesco Costamagna


Calls for market reforms to help improve economic performance have become a mantra in European policy discussions. In the recent years, fears of a new wave of protectionism reopened the debate on the macroeconomic effects of raising tariff and non-tariff barriers. In this policy paper, we evaluate the consequences of such policy options for economies in a liquidity trap - i.e. at times of major slack and binding constraints on monetary policy easing (such as when the zero lower bound on nominal interest rates is binding). First, we analyse the consequences of protectionism through the lens of a benchmark business cycle model. We show that raising trade barriers has contractionary effects both domestically and abroad. Such detrimental effects are larger in a liquidity trap. We conclude that Europe should not engage in protectionism, even in response to an increase in the level of tariffs imposed by a major trading partner (such as the U.S.). We then review recent trends in product and labor market regulation across the European Union members. Using results from the academic literature, we argue that market reforms in Europe are unlikely to induce significant deflationary effects, suggesting that the inability of monetary policy to deliver interest rate cuts might not be a relevant obstacle to reform. While coordinated structural reforms across the EU members would maximise short- and long-term gains, legal considerations of the implementation of reforms across countries pose challenges to the harmonisation process.

Suggested Citation

  • Alessandro Barattieri & Matteo Cacciatore & Francesco Costamagna, 2017. "Trade Policy and Structural Reforms at the Zero Lower Bound: Lessons Learned and Suggestions for Europe," European Economy - Discussion Papers 2015 - 053, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:dispap:053

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:dispap:053. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.