IMF Working Papers

Is Digitalization Driving Domestic Inflation?

By Balazs Csonto, Yuxuan Huang, Camilo E Tovar Mora

December 6, 2019

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Balazs Csonto, Yuxuan Huang, and Camilo E Tovar Mora. Is Digitalization Driving Domestic Inflation?, (USA: International Monetary Fund, 2019) accessed December 14, 2024

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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

Publication Details

  • Pages:

    45

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2019/271

  • Stock No:

    WPIEA2019271

  • ISBN:

    9781513519944

  • ISSN:

    1018-5941