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Posted by: Tom Keene on December 22, 2011

Clarida and Gertler (1997) present both formal and informal evidence that the Bundesbank’s commitment to fight inflation waned somewhat during the period between the two major oil shocks. In 1979 it conceded that this had been a mistake and reaffirmed its commitment to keep inflation low.

Footnote 18, in Clarida, Galí and Gertler, European Economic Review, 1998.

Wane. That is the consistent hue and cry I hear interview after interview with good and smart economists who…agree to disagree on other matters.

They all, repeat all, agree that the combustible mix of combined monetary policy with an original fiscal model forces the Germanic hand.

This morning Professor Clarida reaffirmed PIMCO’s New Normal (hear the interview at Bloomberg Radio+ @AppStore) and suggested inflation was a distant and future concern.

In the mirror, Italy faces nominal and inflation-adjusted rates that scream decline. There are mirrors from Flensburg to Garmisch-Partenkirchen that hint at ghosts of this-had-been-a-mistake pasts.

Secretary Kissinger speaks of a political doomsday machine in his core-read Diplomacy. Is political and economic doomsday upon us with the unique calculus of the Continent?

I know not. What I know, is 2012 beckons. The optimists model ~4%+ US nominal GDP with an austere adjustment for Europe.

This winter week a modest suggestion. Look in the mirror. Think…Gertaly. Discuss.

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EconoChat captures Tom Keene's thoughts on economics, finance and investment. He is editor-at-large for Bloomberg News and hosts Bloomberg Surveillance and Bloomberg on the Economy on NYC1130, Sirius 129 and XM 130 and Surveillance Midday on Bloomberg Television. His complete interviews are at Tom Keene on Demand. Look for Tom on twitter @tomkeene

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