It is my understanding that central banks around the world strive to achieve a stable inflation rate of around 2%. It is claimed that this is because steady low inflation helps contribute to the economy's prosperity. My question is regarding this claim, that steady low inflation is better than a deflationary economy (one with high consumer purchasing power and negative interest rates).
In a deflationary economy with negative interest rates, savings would be discouraged while spending and investments would be encouraged (since you would lose money by keeping it in a bank), thus stimulating the economy. I am not really convinced by the argument that consumers/businesses would decrease spending in anticipation of lower prices since they would still need to purchase essential goods and services. Instead, it might reduce impulsive spending common in inflationary economies. I do realize that debt will indeed become more expensive, as its real value would increase, however, decreased interest rates and the reduced need to borrow (due to increased purchasing power) might balance this out. Even if it does not entirely offset the increase in debt value, this seems like it may be a transitional problem that would only exist when transitioning from an inflationary economy to a deflationary one.
The inquiry stems from the observation that inflation tends to decrease as globalization and technological advancements increase, both of which are associated with economic prosperity. Yet, the central banks around the world keep trying to reverse those effects by artificially increasing the rate of inflation claiming that it is better for the economy. The only negative I can see from a deflationary economy is that banks and financial institutions would make a lot less money. However, as far as I can tell, the consumer and the economy as a whole would benefit from such a model. The only times we have experienced deflationary economies was in times of financial crisis, which may be why we have the current conception of deflation being something to avoid at all costs. I am wondering if the model described above is practically possible and if it would work as I laid out if achieved.
(I have a very basic economic background and have been trying to better understand how things work on a macro level very recently so excuse any oversights)