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The digital economy and the euro area

Summary:
Robert Anderton, Valerie Jarvis, Vincent Labhard, Filippos Petroulakis, Ieva Rubene and Lara Vivian of ECB in this piece: Digitalisation – the diffusion of digital technologies leading to a digital economy – is “virtually everywhere”. It transforms patterns of consumption and production, business models, preferences and relative prices, and thereby entire economies, making it an important issue from a central banking perspective. Some of the key effects of digitalisation relevant to monetary policy relate to output and productivity, labour markets, wages and prices. The impact of digitalisation on the economy is a function, inter alia, of national economic structure and economic policies, institutions and governance. However, it is not clear whether digitalisation is going to deepen

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Robert Anderton, Valerie Jarvis, Vincent Labhard, Filippos Petroulakis, Ieva Rubene and Lara Vivian of ECB in this piece:

Digitalisation – the diffusion of digital technologies leading to a digital economy – is “virtually everywhere”. It transforms patterns of consumption and production, business models, preferences and relative prices, and thereby entire economies, making it an important issue from a central banking perspective. Some of the key effects of digitalisation relevant to monetary policy relate to output and productivity, labour markets, wages and prices.

The impact of digitalisation on the economy is a function, inter alia, of national economic structure and economic policies, institutions and governance. However, it is not clear whether digitalisation is going to deepen differences between countries or reduce them. It is nevertheless interesting to note that the degree of digitalisation varies across the euro area and EU countries and only a few are as digitalised as the most digital countries in the world.

This article mainly summarises and updates the evidence on the euro area and the EU digital economy, including international comparisons.[1] It documents the growth of the digital economy, measured in terms of value added based on the System of National Accounts, the diffusion of digital technologies as captured by suitable indicators, and the impact of digital technologies on the economic environment in which monetary policy operates through their effects on productivity, labour markets and inflation.

This article also takes a closer look at the impact of the coronavirus (COVID-19) pandemic on the digital economy. Since the start of the pandemic, both producers and consumers have become more accustomed to and more reliant on digital technologies. Greater take-up of digital technologies may lead to an acceleration of the structural change that it implies and provide both opportunities and challenges for countries in the euro area and the broader EU.

It is important to note that digitalisation may have implications for the economy beyond those covered in this article. It may affect market structure and competition, with repercussions on innovation and the role of intangibles, and cause distributional issues. Digitalisation may also affect choices around work and leisure and have further welfare implications, both positive and negative, that are not easily measured by the concepts that are the focus of this article.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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