Digitisations effect on the inflation rate : An empirical analysis of possible digitisation channels

Abstract: This thesis investigates the impact of a more digitised economy on the inflation rate. European countries have historically done well in reaching their inflation target. In recent years however, policymakers have been puzzled over low inflation rates that seem to be difficult to stimulate. Just recently the impact of digitisation on price stability has gained some interest in economic research however the lack of empirical evidence on this relationship is severe. Based on scarce literature and existing theories hypotheses were constructed to test certain digitisation channels effect on the inflation rate. By gathering relevant data on inflation and the identified digitisation channels for 17 European countries over an 11- year period, econometric models corresponding to the hypotheses were analysed. The estimated results show that digitisation have a varying net-effect on the inflation rate, demonstrating that digitisation plays a role in determining fluctuations in price stability when controlling for other macroeconomic factors. These findings indicate that policymakers should consider digital technological development when targeting inflation, even though the effects may be temporary.