One way to activate the inflationexpectations effect to stimulate aggregate demand in the short run, without compromising the longerrun inflation objective, would be to implement a target price level. The central bank would promise, for example, to target prices at a predetermined constant level, and would indicate in advance the period over which it would attempt to return to the price-level target.
If deflation follows, a price-level target implies that the central bank will target rising prices – or inflation – for a while in order to return the price level to its target level. The longer deflation lasts, the higher or longer lasting the expected future inflation.