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This thesis deals with deflation. Today the importance of inflation and deflation is creating a false impression about the true meaning of those two economic concepts. The objective of this work is to summarize the concept of deflation and a detailed taxonomy of the Austrian School view contrasted against a traditional view of mainstream economics and the widespread view that deflation is one of the most serious disorders, such as the economy may suffer. But are falling prices really so bad? The theoretical part mainly demonstrates by the value-neutral analysis that the long-declining prices in most cases are beneficial. In the end, these theoretical knowledge is applied in the case study, which analyzes in detail the Japanese economy, for which deflation became synonymous. Findings will be compared with the monetary policies conducted by the Bank of Japan, so I wanted to demonstrate that the persistent economic downturn in Japan is not because of price deflation, but as the result of aggressive fiscal and monetary policies to halt the decline in general level of prices of goods and services.