Macroeconomics and multilateralism The benefits and influence of global macroeconomic policy cooperation Adam John Triggs Crawford School of Public Policy Australian National University A thesis submitted for the degree of Doctor of Philosophy of The Australian National University. August 2018 © Copyright by Adam John Triggs, 2018 All Rights Reserved Declaration I declare that this thesis is my own work and has not been submitted in any form for another degree or diploma at any university or other institute of tertiary education. It contains no material previously published or written by another person, except where duly acknowledged in the text with appropriate referencing. Adam John Triggs August 2018 2 | P a g e For my mother 3 | P a g e Acknowledgements At a campaign rally in Virginia in 2012, Barack Obama reminded his audience that: “if you’ve been successful, you didn’t get there on your own”. While the success of this thesis is for others to judge, it would not have been possible without the generous support of a great many people. First and foremost, I would like to thank Peter Drysdale, my PhD supervisor. Peter’s counsel and support underpinned this research, and his friendship made it fun. Few people have provided more opportunities to young researchers than Peter or have been more generous with their time. Peter turned my vague, broad research idea into a tangible PhD thesis. As the intellectual architect of APEC, Peter helped me bring the economics and the politics of this research into a cohesive framework. His advice consistently steered me in the right direction. I am honoured to join the long and growing list of his former students. While the awarding of a PhD gives its recipient the status of ‘Doctor’, I suspect the status of being a former student of Peter Drysdale is of much greater value. A particular highlight of my PhD has been having the opportunity to work and publish papers with Warwick McKibbin. Ever since I was an undergraduate in economics I have always greatly admired Warwick and his work. It was therefore a tremendous honour to have him on my PhD panel. The analytical rigour and the empirical framework of this thesis is testament to Warwick’s generosity, advice and intellect, for which I am deeply grateful. I suspect that I have learned more about macroeconomics from my conversations with Warwick than in my bachelors and masters degrees, combined. One the most valuable pieces of advice I received before starting my PhD was that “doing a PhD can sometimes make you feel a bit dumb - but don’t worry, that’s part of the learning process”. This pearl of wisdom, along with many others which guided me well, came from Shiro Armstrong. As a member of my panel, Shiro’s advice enriched this thesis through his deep understanding of international economics, international relationships and role and functioning of institutions. But Shiro’s life-advice on how to manage a PhD and the process of completing one was especially valuable. Shiro made my research life much easier and more enjoyable. For constantly answering my questions and solving my problems, I will be forever grateful for his counsel and friendship. My former boss at the Department of the Prime Minister and Cabinet, and Australia’s then G20 sherpa, Gordon de Brouwer, once remarked that finding political solutions to 4 | P a g e the world’s challenges was often more difficult, and more important, than finding economic solutions. Gordon inspired a key focus of this thesis: to better understand how global cooperation works from the perspective of policymakers. As a member of my panel, Gordon brought invaluable experience on how global forums operate in practice. It was Gordon’s advice which encouraged me to do a PhD in the first place; one of the best personal and professional decisions I’ve made. I thank Gordon for all his help and advice. Few have more experience in macroeconomic policy cooperation than David Vines. It was an honour to have him on my panel and am grateful for his advice across all chapters of the thesis. In a conversation with David about my thesis, he suggested: “write down everything that’s wrong with your thesis. Now, either fix those problems or at least mention somewhere that you are aware of them!”. This advice stays with me in any project I undertake. I am deeply grateful to David for always taking the time to answer my questions no matter how many other things he had going on. I would like to give special thanks to Homi Kharas and the team at the Brookings Institution in Washington, D.C. Homi took a chance on an unknown researcher from Down Under. He generously gave comments and suggestions on each chapter of this thesis. I am deeply thankful to Homi and the team and Brookings for hosting me in 2017- 18. I am particularly thankful to Barry Sterland for all his helpful comments and suggestions and, more importantly, for always supplying the beer on those hot, humid weekends in D.C. I would like to thank the Hon. Andrew Leigh MP and his team in Canberra. The worst thing about working in Andrew’s office is the knowledge that you may never work anywhere as fun again! Andrew not only employed me part-time while I was completing my PhD but also co-authored a series of papers with me on competition policy, a fascinating and quickly evolving area of policy. Andrew taught me a great deal in how to write with influence. His values continue to inspire me to this day. Australia would be an even better place if there were more Andrew Leigh’s in its Parliament. Of course, a huge part of this research is due to the generosity of the 63 policymakers who agreed to be interviewed. Their names and their quotes are scattered throughout this thesis. These individuals include current and former leaders, central bank governors, finance ministers and senior officials. These are time-poor individuals who nevertheless took the time to help me with my research, something for which I am deeply grateful. 5 | P a g e Above all else, I thank my partner, Kade, my father, Rob, my brother, Mark and my sister-in-law, Beth. They continue to support my work and my endeavours, as they have now for many years. They have tolerated my long working hours and my prolonged absence from Australia while conducting interviews overseas, attending conferences and living in Washington. Their support made this research possible and has given me the courage to venture out. I hope to repay that support in the many years to come. I have dedicated this thesis to the memory of late mother, Helen. Mum was a loving wife and adoring mother who lost her life far too early after a long battle with illness. Mum was a devoted primary school teacher. She spent her working life teaching in many of the great public schools in Adelaide and Canberra. Mum was passionate about education. She was a strong believer in the ability of education to transform lives. After raising a family and spending her life educating others, illness robbed her of the opportunity to travel in her later years, but she delighted in the knowledge that her two sons would see the world. Mum was compassionate. She was a pacifist. She was an educator. She was a loving wife, an adoring mother and is sorely missed. This thesis is dedicated to her memory. 6 | P a g e Abstract The G20 leaders’ forum was created at a time when the global financial system was on a precipice. Credit markets were freezing. Stock markets were collapsing. Rolling failures across financial institutions were shattering economic confidence. In their first communique, leaders concluded that a root cause of the crisis was insufficient macroeconomic cooperation. It was only through improved cooperation, they warned, that a global depression could be averted. The thesis explores the impact of macroeconomic policy cooperation within the G20 since 2008 and what it means for the challenges facing the world today. It poses four central questions. Does the G20 influence the domestic macroeconomic policies of its members? What are the economic benefits of macroeconomic cooperation and under what circumstances do they arise? Does the G20 produce political benefits that encourage cooperation? Has the G20 been successful in its attempts at macroeconomic cooperation in the past? The thesis attempts to answer these questions using data analysis, a new G20-version of a general equilibrium model and the results from in-depth interviews with 63 leaders, central banks governors, finance ministers and officials from across all G20 countries, including Kevin Rudd, Janet Yellen, Haruhiko Kuroda, Ben Bernanke, Jack Lew, Mark Carney, Phil Lowe and 56 others. The thesis looks at the six areas that make up the G20’s history on macroeconomic cooperation since 2008 – a chronology of the G20’s first 10 years as a forum for leaders - and their relevance to the challenges facing the world in 2018: the economic and political benefits of coordinating fiscal stimulus (Chapter 3), fixing the inadequacies in the world’s crisis-fighting mechanisms (Chapter 4), helping countries to reduce debt and deficits (Chapter 5), strengthening monetary policy cooperation (Chapter 6), reducing global current account imbalances (Chapter 7) and promoting coordinated structural reform (Chapter 8). Chapter 9 summarises the findings of the thesis. Fundamentally, the thesis demonstrates the benefits and influence of global macroeconomic policy cooperation and the cost of abandoning it. The thesis shows that the G20 does influence domestic macroeconomic policies, that the benefits from cooperation can be substantial, that the G20 can help 7 | P a g e politicians undertake difficult reforms and that the G20 has a strong record of success and remains a critical part of global economic governance.