However, it should be noted that in the actual conduct of monetary policy, market participants might doubt that the use of additional fiscal space indicates a retreat from the government’s efforts to achieve fiscal soundness. In fact, the theoretical analysis is based on the preconditions that the government’s intertemporal budget constraint is satisfied and that its solvency will be achieved.
Naturally, structural change poses a daunting challenge to the industrialised world, too. However, protective tariffs are not the right answer, as they harbour the threat of countermeasures that could spiral into a trade war – one that would ultimately only produce losers and one that I give an urgent warning of.