Macroeconomics and Varieties of Capitalism
This chapter shows how production regimes are complementary to welfare state regimes and political systems, perusing a number of arguments which have been developed over the period since the original publication of VoC in 2001. These complementarities serve as a background for understanding a fourth complementarity which has not been discussed before in any detail — that between CMEs and conservative systems of aggregate demand management. This is critical in understanding the quite different patterns of adjustment of CMEs and LMEs to the demand shocks of the last decade. It argues that while LMEs can use discretionary monetary and fiscal policy, CMEs find this much harder. The chapter also explains why income restraint, and hence, real exchange rate depreciation is more effective in small CMEs than large CMEs.
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