Liquidity Traps, Digital Currencies and Inflation Targeting: A Comparative Analysis of Policy Effectiveness in Advanced and Emerging Economies

Abstract

This research investigates how the evolving challenges and opportunities of implementing United States (US) monetary policy, especially liquidity traps, digital currency, and inflation targeting, have changed since the 1930s. A case of public perceptions of the Federal Reserve’s policy effectiveness and the adjustment of Central Bank Digital Currencies (CBDCs) to key macroeconomic issues like liquidity management and inflation control is studied. Data was collected using a quantitative survey-based approach from a diverse sample of US residents regarding their views on the pervasiveness of liquidity traps and support for possible modifications of the inflation-targeting framework to improve the operational efficacy of interest rate policy in light of the introduction of digital currencies. For assessing the relationships between demographic factors, economic sentiment, financial literacy, and trust in the Federal Reserve, statistical analyses was run: Chi-Square tests, T-tests, ANOVA, and regression models. It suggests substantial support for the adoption of digital currency, but there are still basic issues related to privacy, financial stability, and public acceptance among the general public. The research also finds that new financial innovations require adjustments in the inflation targeting frameworks. The contribution of this study is to the ongoing discussion on how monetary policy can evolve and how it needs to be altered to confront modern economic challenges.

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