Is Digitalization Driving Domestic Inflation?

IMF Working Papers, December 6, 2019

Source details

Study sample: 36 advanced and emerging economies over 2000-2017.
Digitalization is measured by a new proxy based on IP addresses allocations per country.
Phillips curve estimates show that digitalization has a statistically significant negative effect on inflation in the short run.
The economic impact of digitalization on inflation is not large but has increased since 2012.
The main transmission channel is through a cost/competition channel.
Principal components and cointegration analysis further suggest digitalization is a key driver of lower trend inflation.

New proxy: IP addresses allocations per country used to measure digitalization.
Empirical approaches: Phillips curve estimation, principal components analysis, and cointegration analysis.
Timeframe: 2000-2017.
Sample: 36 advanced and emerging economies.

Short-run dynamics: Digitalization reduces inflation pressures via cost reductions and increased competition, with statistically significant effects in Phillips curve specifications.
Trend dynamics: Evidence from principal components and cointegration analysis indicates digitalization contributes to lower trend inflation.
Temporal evolution: The inflation-reducing impact of digitalization has grown since 2012.

Subjects: 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.

Is Digitalization Driving Domestic Inflation? By Balazs Csonto, Yuxuan Huang, Camilo E Tovar Mora; December 6, 2019.