Is Digitalization Driving Domestic Inflation?

ByBalazs Csonto, Yuxuan Huang, Camilo E Tovar Mora

December 6, 2019

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper examines the extent to which digitalization—measured by a new proxy based on IP addresses allocations per country—has influenced inflation dynamics in a sample of 36 advanced and emerging economies over 2000-2017. Phillips curve estimates show that digitalization has a statistically significant negative effect on inflation in the short run. Its economic impact is not large but has increased since 2012 and mainly operates through a cost/competition channel. Principal components and cointegration analysis further suggest digitalization is a key driver of lower trend inflation.

Subject: Digital economy, Digitalization, Economic sectors, Global value chains, Globalization, Inflation, Output gap, Prices, Production, Technology

Keywords: Digital economy, Digitalization, food inflation, Global, Global value chains, Inflation, inflation dynamics, inflation expectation, inflation gap, inflation trend, inflation variation, Internet, IP Address, Output gap, Phillips curve, trend inflation, WP

Pages:
45
Volume:
2019
DOI:
https://doi.org/10.5089/9781513519944.001
Issue:
271
Series:
Working Paper No. 2019/271
Stock No:
WPIEA2019271
ISBN:
9781513519944
ISSN:
1018-5941

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