Digitalization and implications for monetary policy

• Main Author: Τσάφος, Βασίλειος
• Other Authors: Tsafos, Vasileios
• Language: English
• Published: 2022
• Subjects: Digitalization; Digitalization indices; HICP; Inflation; Monetary policy; Ψηφιοποίηση; Δείκτες ψηφιοποίησης; ΕνΔΤΚ; Πληθωρισμός; Νομισματική πολιτική

Digitalization plays an important role in our days. Several studies have been done on the relationship it has with inflation with various measurement indicators. In this dissertation, we will examine the effects of digitization on inflation and by extension on monetary policy through various channels. We used panel data and more specifically Fixed Effects (FE) models for the 19 countries of Euro Area, for the period 1996-2021, in annual frequency. In order to make our estimations, we used a basic model and five other alternative models. The elemental variables for our models are Harmonized Indices of Consumer Prices. Our findings suggest the negative effect of the digitalization index on inflation and generally on HICP , but in some cases the positive effect but a very small effect. Digitalization exerts no particular effect on inflation expectation as captured by price trends in some of our models. Regarding monetary policy, due to digitalization the effect on inflation is more limited and this may result in the central bank not reacting directly to interest rates.