Emergent inflation-deflation cycles from minimalistic wage dynamics

Fisher's classical debt-deflation model outlined a sequence of events governing the positive feedback in economic downturns. This theory has been formative for modern economic policy, including the 2008 crisis. However, few quantitative models have been developed to incorporate positive feedback in cyclic economic dynamics. Here we present an agent-based model in which companies compete by adjusting wages, and workers probabilistically choose employers based on the wage offered. Despite omitting debt, unemployment, and other features in Fisher's model, the model generates endogenous inflation-deflation cycles, irregularly recurring recessions, and clustered bankruptcies. These dynamics emerge from feedback between wage growth, consumer demand, and company fragility, where high wages increase purchasing power but also raise vulnerability to shocks. The model qualitatively reproduces several empirical patterns, including inflation volatility, recession periods and durations, and asymmetric asset returns, though it diverges in firm size distributions and mortality rates. Our results demonstrate that complex macroeconomic behavior can arise from simple, wage-driven interactions alone.