Is inflation caused by conflict?
We worry about three issues:
The soundness of talking about inflation in a barter economy
The lack of empirical relevance
The policy implications of the Marxist roots of their model.
Abstract
We offer a critique of a paper recently published Lorenzoni and Werning (2023) that seeks to make an original contribution to the hypothesis that inflation is primarily caused by conflict and reconcile the Post-Keynesian and New-Keynesian traditions. L&W’s paper has two sections. In the first they develop a barter model that allows them to prove that inflation can occur with conflict and without money. In the second they incorporate the conflict hypothesis into a broader framework compatible with New Keynesian models. We question the logical consistency and empirical validity of the barter model and the testability of the model with staggered pricing assumptions. We also trace the ideological roots of inflation as conflict hypothesis and highlight the policy implications that must be logically derived from it.