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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.

Inflation --- Macroeconomics --- Industries: Information Technololgy --- Production and Operations Management --- Globalization --- Price Level --- Deflation --- Central Banks and Their Policies --- Globalization: Macroeconomic Impacts --- Information and Internet Services --- Computer Software --- Technological Change: Choices and Consequences --- Diffusion Processes --- Globalization: General --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Macroeconomics: Production --- Information technology industries --- Digital or internet economics --- Digitalization --- Global value chains --- Digital economy --- Output gap --- Prices --- Technology --- Economic sectors --- Production --- Information technology --- Electronic commerce --- Economic theory --- China, People's Republic of