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One-size-fits-some! Capitalist diversity, sectoral interests and monetary policy in the euro area

Mattias Vermeiren

Review of International Political Economy, 2017, vol. 24, issue 6, 929-957

Abstract: In the comparative capitalism literature, the European Central Bank's (ECB's) ‘one-size-fits-none’ monetary policy played a key role in the widening of trade imbalances in the euro area (EA) by being overly restrictive for the region's coordinated market economies (CMEs) and overly expansionary for the region's mixed market economies (MMEs). According to this literature, wage setting institutions mediated how the ECB's monetary policy re-distributed resources between the traded and non-traded sectors in these varieties of capitalism. By examining three separate transmission channels of the ECB's monetary policies (wage and price setting in labor and product markets; nominal exchange rate of the euro; funding costs and bank credit), this paper goes beyond the traditional emphasis on wage setting institutions and draws attention to those institutions that underpin the non-price competitiveness of traded sectors. Overall, the paper explains how the institutional infrastructure of the CMEs bolstered the adaptability of their traded sectors to the ECB's single monetary policy and its three transmission mechanisms – both during the pre-crisis era of widening imbalances and the period of asymmetrical trade rebalancing since the outbreak of the euro crisis.

Date: 2017
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Review of International Political Economy is currently edited by Gregory Chin, Juliet Johnson, Daniel Mügge, Kevin Gallagher, Ilene Grabel and Cornelia Woll

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