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Emergent inflation-deflation cycles from minimalistic wage dynamics.
Tobias H B Holm1, Kim Sneppen1
1University of Copenhagen, Niels Bohr Institute, Copenhagen 2100, Denmark.
Physical Review. E
|December 23, 2025
Summary
This study introduces an agent-based model demonstrating how wage dynamics alone can create economic cycles. It shows that simple wage competition can lead to inflation-deflation, recessions, and bankruptcies without debt.
Area of Science:
- Economics
- Computational Economics
- Economic Modeling
Background:
- Fisher's debt-deflation model is foundational for understanding economic downturns and policy.
- Quantitative models incorporating positive feedback in cyclic economic dynamics are scarce.
Purpose of the Study:
- To develop an agent-based model to explore endogenous inflation-deflation cycles.
- To investigate how wage dynamics influence macroeconomic stability and business cycles.
Main Methods:
- An agent-based model was created where firms adjust wages and workers choose employers based on wages.
- The model simulates interactions without explicitly including debt or unemployment.
Main Results:
- The model generates endogenous inflation-deflation cycles and irregular recessions.
- Feedback between wage growth, consumer demand, and firm fragility drives observed macroeconomic dynamics.
- The model qualitatively reproduces inflation volatility, recession patterns, and asymmetric asset returns.
Conclusions:
- Complex macroeconomic behavior can emerge from simple, wage-driven interactions.
- Wage dynamics play a crucial role in generating economic cycles and instability.
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