In the book, they claim that monetary policy cannot fight against deflation. However let me propose a scenario:
Nominal Interest Rate = 8%
Inflation = 1%
Real Interest Rate = 7%
then deflation kicks in (-1% inflation) which causes the real interest rate to rise to 9%.
However, couldn’t the central bank merely lower the nominal interest rate to, let’s say, 5%, which would make the real interest rate 6%, and thus this lowering of the real interest rate could create an expansionary monetary policy and boost the economy?