Deflation and internal-devaluation might also work...

Paul Krugman is arguing about the desirability and plausibility of external devaluation or depreciation over internal devaluation that the first one is easy and quick to achieve instead of cutting nominal wages and prices through the latter. Both are the ways of cutting wage cost, lower prices relative to the nominal exchange rate and increase demand for exports. In depreciation the economy tries to cut real wages with inflation, and, lower cost of production and prices relative to the nominal exchange rate. Inflation also increases the nominal exchange rate. Such a policy aims two things, lower cost of production and prices, and higher nominal exchange rate too. But to achieve depreciation it is important that inflation increase which might not work in the liquidity trap when people save more in expectation of higher future prices because of expansionary policies. But, when savings go up, inflation fails to materialise and instead turn to disinflation or deflation which increases the problem of liquidity trap by lowering prices and interest rate. Even very large amount of money fails to increase inflation. Lower demand increases the relative supply and put a downward pressure on prices in the liquidity trap. However, if inflation goes up it would lower domestic demand due to lower real wages. Therefore, depreciation in liquidity trap world might not work, and moreover inflation and real wage cuts would increase external demand at the cost of domestic demand. In internal devaluation also the economy tries to reduce nominal wages and prices relative to the nominal exchange rate to increase export demand which would also hurt domestic demand, but wages are mostly sticky in the short-run which economists consider responsible for adjustment to store demand. The wage rigidity points to adjustment in other cost, profits and prices to increase external demand which might not be as rigid as wages because all wages are consumed, like low interest rates. But, in the liquidity trap or at the zero lower bound the adjustment cannot be continued without increasing expected inflation which aggravates savings and liquidity-trap by reducing domestic demand and growth. Much of the developed world is going through the liquidity trap and expansionary policies are unable to increase inflation and depreciation. Lose policies have failed to increase inflation and depreciation, but expected inflation and savings have worsened the spending, demand and growth. Therefore, lack of depreciation has not increased external demand and expected inflation has also lowered domestic demand. However, if the policy-makers commit deflation with lose money-supply because lower interest-rate would increase investment and supply, and lower the prices, they might be able to increase both domestic and external demand without increasing inflation, inflationary-expectations, depreciation and nominal exchange rate. It would work same like depreciation by lowering prices and increase the real exchange rate to increase export demand. Krugman should think about the difficulty the Western-world is facing to increase inflation when deflation is more imminent and more money-supply is not pushing inflation up, but rather increasing supply and lowering prices by lowering the borrowing cost. In such a condition deflation could be used as a strategy to increase real exchange rate and external demand. Lower prices would also increase domestic demand. When deflation could help achieve higher real wages and higher exchange rate and domestic and external demand, both, then “why the policy-makers are trying to increase inflation, which would increase external demand by increasing the nominal exchange-rate, but would decrease real wages and internal-demand, when they might choose to increase both by internal devaluation...? Lower prices or inflation would increase real-wages and domestic-demand and higher real exchange rate due to deflation could also increase external-demand...