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Business and Economics > Production and Operations Management

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Cover IMF Working Papers
Is Digitalization Driving Domestic Inflation?
Mr. Balazs Csonto
,
Yuxuan Huang
, and
Mr. Camilo E Tovar Mora
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.
Keywords:
WP; Phillips curve; Inflation; Digitalization; IP Address; Internet; inflation expectation; inflation dynamics; food inflation; inflation trend; inflation variation; trend inflation; inflation gap; Global value chains; Digital economy; Output gap; Global