Optimal monetary policy aims to maximize welfare by managing frictions in the economy. A model with two types of frictions - costly price adjustments by firms and costly exchange of wealth for goods - shows that the ideal policy involves keeping the nominal interest rate low to encourage deflation, while still maintaining a positive rate. Stabilizing the price level around a deflationary trend path is crucial, with only small fluctuations. This means that the nominal interest rate must adjust based on real economic activity changes.