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The global financial architecture is struggling to facilitate the sustainable investment needed to address climate change. Some argue that if the Basel III global capital rules treated environmentally friendly assets as being safer forms of capital, banks would be incentivized to hold more of these assets on their balance sheets and extend more green debt, promoting sustainable investment. This paper explores the possible impacts of this reform by combining firm-level environmental, social, and governance (ESG) data with a global general equilibrium model. It finds that the reform would result in a significant reallocation of capital, goods, and services across sectors and economies. It finds that while the reform could significantly increase investment, the investment is not necessarily sustainable and not all countries benefit from cooperation. The paper identifies a range of challenges that need to be overcome for these results to hold, including the reliability of ESG data, inconsistencies in taxonomies and methodologies, and further analysis confirming whether green firms are indeed safer borrowers. The paper argues that the G20 is well placed to address these challenges and outlines an agenda to achieve it.

Many US policymakers on both sides of the aisle, including President Trump, have called on the US Federal Reserve to cut interest rates to depreciate the US dollar. This paper uses an intertemporal general equilibrium model to explore what would likely happen if this policy was pursued. It shows that the general equilibrium effects of a depreciated real effective exchange rate brought about by lower US interest rates can result in a wide variety of unintended consequences. The paper explores what would happen if US trading partners were to retaliate by devaluing their currencies.

Australia has a competition problem: there is not enough of it. Our industries are concentrated. Our markets show signs of weak competition. The way Australia’s courts, parliamentarians and regulators think about competition is partly to blame. Although it has been less influential in Australia than in the United States, the Chicago School’s views on competition have shaped our laws, policies and enforcement practices. The Chicago School views market concentration as a virtue more than a vice. The School contended that barriers to entry are negligible, market power is temporary, most mergers are good, vertical restraints and predatory pricing are either benign or efficient. The growing body of research and experience, however, shows that the Chicago School’s faith in the ability of markets to self-correct and deliver competitive outcomes was misplaced. There is a strong progressive case for repositioning how we think about competition. Focusing more on the competitive process, the structure of markets and the incentives those structures create for firms will play an important role in reducing inequality.

The growth in global current account imbalances has produced a lopsided global economy, characterised by large lenders and large borrowers, large savers and large consumers, and large exporters and large importers. For many years, the G20 has committed to reducing these imbalances. But has it been successful? Are the G20's policy prescriptions for reducing these imbalances the right ones? And have countries altered their policies because of the discussions and commitments in the G20 or not? The paper assesses whether the G20 has achieved its goal of reducing global current account imbalances. It then uses the G‐Cubed (G20) model — a multi‐country, multi‐sector, intertemporal general equilibrium model — to assess the impacts of the G20's proposed policy agenda. It shows that the G20's policy prescriptions — reducing the fiscal deficit in the United States, increasing public infrastructure investment in Germany and increasing domestic consumption in China — are not necessarily effective in reducing current account imbalances and, when imbalances are reduced, it often comes at the cost of the real economy. Finally, the paper uses the results from in‐depth interviews with 61 policymakers from across all G20 countries — including Janet Yellen, Kevin Rudd, Ben Bernanke, Haruhiko Kuroda, Jack Lew, Mark Carney and 55 others — to explore whether the G20's focus on current account imbalances influences domestic policies. It finds that, while the G20's influence has been marginal, there are ways in which it could be strengthened. The paper concludes with a discussion on how the G20's agenda could be reformed to help reduce current account imbalances in the future.

Indonesia has managed the complex challenges of the global economy well. The country's capital outflows were smaller in 2018 than during the Taper Tantrum in 2013; the rupiah had regained most of its lost ground by January 2019; the Indonesian stock market has outperformed its peers; growth is forecast to remain stable; inflation is low; unemployment remains below its five-year average; consumer and business confidence are robust; and the government budget has improved through a smaller deficit and cheaper borrowing costs. But significant risks remain. This paper assesses these risks and evaluates the adequacy of Indonesia's crisis management framework. It finds that the framework has serious deficiencies that could see liquidity challenges become systemic solvency crises. The framework effectively removes Bank Indonesia as the lender of last resort, risks politicising the process of crisis response, and could mean slower, less effective responses to crises. This paper explores how the framework could be improved and what reforms could be undertaken to deepen Indonesia's financial system, strengthen financial resilience, and boost the long-term growth outlook.

Economic theory suggests that monopoly prices hurt consumers but benefit shareholders. But in a world where individuals or households can be both consumers and shareholders, the impact of market power on inequality depends in part on the relative distribution of consumption and corporate equity ownership across individuals or households. The paper calculates this distribution for the United States, using data from the Survey of Consumer Finances and the Consumer Expenditure Survey, spanning nearly three decades from 1989 to 2016. In 2016, the top 20 per cent consumed approximately as much as the bottom 60 per cent, but had 15 times as much corporate equity. Because ownership is more skewed than consumption, increased mark-ups increase inequality. Moreover, over time, corporate equity has become even more skewed relative to consumption.

This paper provides the first estimates of the extent of common ownership of competing firms in Australia. Combining data on market shares and substantial shareholdings, we calculate the impact of common ownership on effective market concentration. Among firms where we can identify at least one owner, 31 per cent share a substantial owner with a rival company. Analysing 443 industries, we identify 49 that exhibit common ownership, including commercial banking, explosives manufacturing, fuel retailing, insurance and iron ore mining. Across the Australian economy, common ownership increases effective market concentration by 21 per cent. Our estimates imply that if listed firms seek to maximise the value of their investors’ portfolios, then they place the same value on $3.70 of their competitors’ profits as on $1 of their own profits. We discuss the limitations of the available data, and the potential implications of common ownership for competition in Australia.

The world’s developed economies are experiencing a sharp backlash against globalisation, and it appears to be contagious. Will Asia catch it next? Asia has seen spectacular growth in recent decades. It has benefited substantially from global trade, finance, openness and the rules-based international order. But much of the growth Asia has enjoyed has not been shared. It has not been inclusive growth. Inequality in Asia is among the highest in the world. The richest man in Vietnam now earns more in a single day than the poorest person does in a decade. Asia has far to go in making its societies more inclusive to women, ethnic minorities and the LGBT community. How can Asia reduce inequality? What are the forces that determine whether growth in the Asia Pacific is inclusive or not? And what can be done to make Asia’s growth more inclusive in the future? This book brings together the region’s leading thinkers to explore how to change Asia’s trajectory, before it is too late. The Pacific Trade and Development (PAFTAD) conference series has been at the forefront of analysing challenges facing the economies of East Asia and the Pacific since its first meeting in Tokyo in January 1968.

In 2019, President Trump called on the U.S. Federal Reserve to cut interest rates to depreciate the U.S. dollar, which, according to the IMF, is overvalued by between 6 and 12 percent. This paper uses an intertemporal general equilibrium model to explore what would likely happen if the President’s wish was granted. Using the G-Cubed (G20) model, it shows that the general equilibrium effects of a depreciated real effective exchange rate brought about by lower U.S. interest rates can result in a wide variety of unintended consequences, many of which contradict the stated aims of President Trump and his administration. Such a policy would likely result in a larger U.S. trade deficit, would only temporarily devalue the real effective exchange rate and would only temporarily support the U.S. economy. The policy would boost the trade balances of most U.S. trading partners, depreciate China’s exchange rate and boost China’s GDP. Given the policy would make the overvalued exchange rates of many economies even more overvalued, the paper explores what would happen if U.S. trading partners were to retaliate by devaluing their currencies. It shows that this makes it harder for the U.S. to achieve its objectives and forces a more severe adjustment for economies that presently have undervalued exchange rates.

Has the G20 achieved its goals in macroeconomic cooperation since 2008? The paper organises the G20's efforts under five themes: macroeconomic stimulus, fiscal consolidation, monetary policy, the global financial safety net and global imbalances. The G20 was initially successful in each of these areas, but this success was short‐lived. While the G20 met its goals on macroeconomic stimulus, it has been less successful in reducing deficits and debt. While it was successful in increasing its resources, the global financial safety net remains too small, too fragmented and institutional reform is incomplete. While the G20 succeeded in moving to more market‐determined exchange rates and avoiding competitive devaluations, it struggled to avoid negative spillovers. Despite years of effort, the G20 has made limited progress in reducing global imbalances. Current account imbalances are creeping back to pre‐crisis levels. Public debt remains high and most economies are moving in the wrong direction in correcting imbalances in household savings and debt. The paper concludes that the G20 has done better in some areas than others. But to suggest the G20 is a forum in decline ignores its shift from reactive crisis response to longer‐term structural challenges outside of the pressing need of an immediate crisis.

The rise of China is challenging the international financial architecture in a number of ways. This paper highlights three that are of critical importance: the challenge of absorbing massive Chinese savings; the incorporation of China into a cohesive global financial safety net; and the organisation of China's participation in funding the demand for international investment projects. The global financial architecture needs to be reformed. But what role should China play? The paper defines the options open to China and the opportunities and barriers it will face. We argue that China can work with the established economic powers in reforming the existing architecture. At the same time, China seeks cooperation in building new institutions and organisations that fill gaps in the existing arrangements. But no matter how international financial diplomacy plays out in the near term, deep financial and economic reform at home will alone deliver China a central role in the international financial architecture. Domestic reform could also attend to some of the challenges that currently plague China's impact on the system. The success or failure of these domestic reforms will be at the crux of the strength or fragility of the international financial architecture in the years ahead.

Productivity growth has flat-lined in most economies despite rapid advances in technology. Economists suggest competing explanations for this paradox. Some argue the current stagnation will persist given deep structural challenges, arguing that recent technological advances are no match for those of the past. Others argue that the historical time-lag between technological advances and increased productivity means a productivity surge is just around the corner. The paper explores the implications of alternative productivity growth scenarios for the global economy, particularly for growth, labor markets and the flows of trade and capital. The paper explores the appropriate policy response under these alternative scenarios. It highlights the importance of productivity-enhancing reforms and the first-mover benefits that can flow to economies which move closer to the productivity frontier. It explores the factors that constrain an economy’s ability to reap the full benefits of any future productivity boom. It highlights the consequences of asymmetric increases in productivity across countries for both booming and non-booming economies and the role of monetary and fiscal policies, with particular warnings for the stability of the euro zone. Finally, it highlights the implications of asymmetric productivity changes across sectors and the importance of flexibility in labor, capital and product markets.

Economic theory suggests that monopoly prices hurt consumers but benefit shareholders. But in a world where individuals or households can be both consumers and shareholders, the impact of market power on inequality depends in part on the relative distribution of consumption and corporate equity ownership across individuals or households. The paper calculates this distribution for the United States, using data from the Survey of Consumer Finances and the Consumer Expenditure Survey, spanning nearly three decades from 1989 to 2016. In 2016, the top 20 per cent consumed approximately as much as the bottom 60 per cent, but had 15 times as much corporate equity. Because ownership is more skewed than consumption, increased mark-ups increase inequality. Moreover, over time, corporate equity has become even more skewed relative to consumption.

World leaders have declared the G20 to be the premier forum for economic cooperation. But as its influence and policy agenda has grown, so too has the need to be able to effectively model the G20 and the implications of its policy agenda. The paper introduces the G-Cubed (G20) model: a multi-country, multi-sector, intertemporal general equilibrium model of the G20. The paper gives an overview of the model and highlights its key features through four simulated shocks, all of which relate to the G20’s goal of reducing global current account imbalances: a fiscal shock (reducing the fiscal deficit in the United States), a productivity/fiscal shock (increasing infrastructure investment in Germany), a consumption shock (increasing domestic consumption in China) and the collective impact of all three shocks occurring simultaneously. The results demonstrate that, to be effective, any model of the G20 must reflect the complex trade and financial linkages between countries, the structural differences across G20 economies and the short-term rigidities observed empirically in the data, as well as a high level of disaggregation across economies, markets and sectors. The simulations show that reducing current account imbalances through these policies often comes with a real economic cost. The results also explain some of the shifts in global current account balances observed since 2007.