Since the price differences between online and offline goods have the potential to steepen the Phillips curve and call into question conventional inflation models, the impact of digitalization on important economic variables that are relevant to monetary policy requires careful monitoring.
One could consider digitalization to be a long-term technological shock that affects labor markets, inflation, productivity, economic growth, and older technologies. More than 15% of the world’s GDP is already thought to come from the digital economy, and during the next three years, generative artificial intelligence (Gen-AI) alone is expected to increase global GDP by $7–10 trillion.
Online brokerage accounts, robo-advisors, investment apps, and similar tools have made saving and investing easier, faster, and more informed, which has coincided with the growth of digital consumption. Household borrowing habits have also been impacted by digitalization, which has made it easier and more accessible for FinTech companies to offer digital loans and decreased information asymmetries from a variety of sources, such as tax returns, electronic toll collection, and bill payments.
The transmission of monetary policy impulses to the actual economy may be impacted by the departure from conventional savings methods. Second, central banks must be alert to the potential for household-level risk accumulation and debt escalation.
Central banks and policymakers may need to switch from traditional macroeconomic models to agent-based modeling, behavioral economics integration, nowcasting, policy simulations, and sophisticated liquidity stress testing in response to changes in consumer behavior.