Lower prices are expansionary...

Increase in the real exchange–rate means increase in the purchasing power of the currency, it goes-up… It is called internal devaluation… It lowers prices by consistent policies and communicating the subjects that in the long-run prices, expected-inflation may go down depending on the current inflation… Increase in the real exchange rate also means lower prices and lower prices are more expansionary… Its opposite is external-devaluation.. Means increase in inflation and depreciation or increase in the nominal exchange-rate, as we commonly know… It also lowers prices relative to the exchange rate… Both increase demand at their levels, but in the external devaluation we lose imports by increasing depreciation and also lower real-wages and demand by inflation… In the internal devaluation lower prices also increase domestic demand and imports by increasing the real wages…

Inflation reduces the value of money and people also save more for the future, it reduces current demand and also future demand. It is ultimately the real interest rate that matters in comparison to nominal interest rate at the zero-lower bound, which might affect investment; lower inflation may increase real return on capital and vice-versa. Capitalists save and they would invest more in case of higher interest rate and return on capital... Others savings would also go up... It is not appropriate to increase inflation and reduce demand by raising nominal interest rates... However, we might try to keep inflation low by keeping nominal interest rate low. Lower interest rate could be correlated to higher supply and lower prices... Inflation does not reduce capital cost, rather it hurts return on capital, real interest rate goes down, savings and investment go down...   Nonetheless, low inflation might increase return on capital... Low inflation is good for both, consumption because lower prices increase demand, and savings and investment because real interest rate would go up... Low inflation is more important for demand and growth than inflation targeting...