💰 quantitative finance

Implications of zero-growth economics analysed with an agent-based model

Using the PG-DYNAMIN agent-based model, this study demonstrates that while zero-growth economies offer greater macroeconomic stability, lower unemployment, and reduced corporate debt compared to growth scenarios, they also entail higher inflation, increased market concentration, and more severe crises with higher firm default probabilities.

Original authors: Dylan C. Terry-Doyle, Adam B. Barrett

Published 2026-04-17

📖 5 min read🧠 Deep dive

CC BY 4.0

Original authors: Dylan C. Terry-Doyle, Adam B. Barrett

Original paper licensed under CC BY 4.0 (http://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

🌱 When the Economy Stops Growing: An Experiment with a Digital World

Imagine the global economy as a huge, living organism—or even better: as a gigantic, bustling playground.

In the normal world on this playground, there is one rule: Everyone must always run faster. Companies must sell more, banks must lend more, and everyone hopes that each year will be richer than the last. We call this "growth."

But what happens if we stop? What happens if we say, "Enough, let's stand still"? That is exactly what researchers D. C. Terry-Doyle and A. B. Barrett examined in their study. They did not analyze a real economy (since one without growth does not yet exist), but instead built a digital simulation.

🎮 The Digital Playground: The PG-DYNAMIN Model

The researchers programmed a kind of "video game" they call PG-DYNAMIN. In this game, there are four main groups of characters:

The Workers (Households): They work, earn money, and buy things.
The Sellers (Consumer Firms): They produce goods and sell them.
The Machine Builders (Capital Firms): They build the machines that the sellers need.
The Lenders (Banks): They lend money and collect interest.

The special thing about this game is that there is no central control. Every player makes their own decisions, just like in real life. If a company goes bankrupt, it disappears, and a new one takes its place. If a bank has problems, depositors intervene.

The researchers ran this game twice:

Scenario A (Growth): Companies become more efficient every year (like an athlete who gets faster each year). The game runs for 100 years.
Scenario B (Zero Growth): Companies do not become more efficient. The economy remains static. Here too, the game runs for 100 years.

Then they compared the results.

📉 What Happened When Growth Stopped?

The results were surprising and mixed. It was not simply "good" or "bad," but looked quite different from what we are used to.

1. The Calm Sea vs. the Wild Waves (Stability)

In Growth Mode: The economy was like a wild sea. There were huge waves (booms) and deep valleys (crises). Companies constantly had to adjust who was hired and who was fired. This was very turbulent.
In Zero-Growth Mode: The sea was calmer. Unemployment was lower and more stable. Wages made up a larger share of the total pie. This is good for workers!
- But: When waves came in Zero-Growth Mode, they were more violent. Crises were rarer, but when they arrived, they hit harder.

2. The Great Eater (Inflation)

In Zero-Growth Mode, prices rose faster (inflation).
The Analogy: Imagine you have a cake (the economy). In Growth Mode, the cake gets bigger every day, so everyone can eat more. In Zero-Growth Mode, the cake stays the same size. But if workers want more money (wages rise), the price for a slice of cake must rise so the bakery doesn't lose out. This leads to inflation.

3. The Giants and the Dwarfs (Market Concentration)

In Growth Mode, many small companies die, but many new ones also emerge. It is a wild competition.
In Zero-Growth Mode, the big giants survive much longer. Small companies have it harder. This leads to a few large companies dominating the market (like a monopoly).
- The Risk: If these few giants wobble, the entire playground wobbles.

4. The Debt Network (Systemic Risk)

This was the most interesting result: In Zero-Growth Mode, the debt network between banks and companies was safer. If a company went bankrupt, it did not drag as many others down into the abyss as in Growth Mode.
Why? Because in Growth Mode, everyone relies so heavily on credit to grow that a single jolt can bring the whole house crashing down. In stillness, debts are less riskily interconnected.

🎭 The Moral of the Story

The study tells us: An end to growth is not the end of the world.

It is more like switching from a race car to a train.

The race car (Growth) is fast, but it needs a lot of fuel, is loud, shakes violently, and in an accident, everything is destroyed.
The train (Zero Growth) moves slower, is more stable on the tracks, and the passengers (workers) have it calmer. But: If the train jumps off the tracks, the derailment is catastrophic. And the train needs a different strategy to keep the passengers satisfied (namely against inflation and the dominance of large companies).

Conclusion for All of Us:
The world can function without constant growth. In fact, it could even be fairer for workers and make the financial system more stable. But it requires a shift: We must learn to cope with less growth, keep an eye on prices, and ensure that not just a few huge companies dominate the market. It is not a collapse, but a restructuring of our economy.

1. Problem Statement

The paper addresses the growing consensus that infinite economic growth is physically impossible due to planetary boundaries and the thermodynamic limits of resource extraction and waste accumulation. While "Post-Growth" or "Zero-Growth" economics is a subject of intense debate, existing macroeconomic models have yielded mixed results regarding the stability of a capitalist system with interest-bearing debt under zero-growth conditions.

Key Gaps Identified:

Micro-level Blind Spot: Previous studies (e.g., Barrett, 2018) focused on macroeconomic aggregates (GDP, debt ratios) but failed to analyze microeconomic consequences such as firm bankruptcy rates, market concentration, and systemic risk within credit networks.
Theoretical Uncertainty: It remains unclear whether a zero-growth trajectory leads to greater economic instability, higher inequality, or systemic collapse in a capitalist framework where debt requires growth to service interest.
Decoupling Fallacy: The paper challenges the feasibility of "green growth" or decoupling, arguing that efficiency gains often lead to increased consumption (Jevons' paradox), necessitating a direct analysis of zero-growth scenarios.

2. Methodology: The PG-DYNAMIN Model

The authors developed the Post-Growth DYNamic Agent-based MINskyan (PG-DYNAMIN) model, a Stock-Flow Consistent (SFC) Agent-Based Model (ABM).

Model Architecture:

Sectors: The model includes four interacting sectors:
1. Households: Supply labor, consume goods, save deposits, and receive interest.
2. Consumption Firms (C-firms): Produce consumer goods using labor and capital; they are the primary borrowers for investment.
3. Capital Firms (K-firms): Produce capital goods for C-firms.
4. Banks: Create money endogenously through lending, manage risk, and facilitate credit networks.
Financial Dynamics (Minskyan): The model incorporates Hyman Minsky's Financial Instability Hypothesis. Debt is endogenous; firms borrow based on profitability and productivity expectations. Banks adjust credit supply based on capital ratios and expected default probabilities.
Production & Pricing:
- Production: C-firms use a Leontief production function; K-firms use a linear function.
- Productivity: Labor productivity follows a Geometric Brownian Motion (GBM).
- Pricing: Firms use adaptive expectations, adjusting prices and wages based on excess demand/supply and market averages.
Simulation Design:
- Scenarios: Four scenarios were simulated over 100 years (800 quarters), comparing Growth (2% mean productivity growth) vs. Zero-Growth (0% mean productivity growth).
- Debt Sensitivity: Two levels of desired debt-to-output ratios were tested for each growth scenario (Low and High volatility).
- Validation: The baseline Growth scenario was validated against empirical "stylised facts" (e.g., fat-tailed GDP distributions, Minskyan debt cycles, Okun's law, Phillips curves).

3. Key Contributions

First Multi-Level Analysis: This is the first study to simultaneously analyze macroeconomic stability and microeconomic distributional effects (firm size, bankruptcy, market concentration) in a zero-growth capitalist economy using an ABM.
Integration of Minsky and Post-Growth: It explicitly models the interaction between interest-bearing debt and zero-growth, moving beyond static equilibrium models to dynamic, crisis-prone systems.
Novel Risk Metrics: The authors introduce the Expected Systemic Loss (ESL) as a percentage of nominal GDP to measure systemic risk in the credit network, distinguishing between flow risk (GDP volatility) and stock risk (asset loss from defaults).
Inflation Mechanism: The model endogenously generates inflation dynamics, revealing a specific mechanism where zero-growth leads to higher inflation due to the accounting identity: $Inflation \approx Wage Growth - Productivity Growth$ .

4. Key Results

A. Macroeconomic Stability

GDP Volatility: Zero-growth scenarios exhibited lower volatility in real GDP growth rates compared to growth scenarios.
Crisis Frequency & Severity: Despite lower volatility, zero-growth scenarios experienced more frequent and more severe economic crises (defined as real GDP growth < -3%).
Unemployment: Zero-growth scenarios resulted in lower and more stable unemployment rates.
Income Distribution:
- Wage Share: Workers received a higher share of GDP in zero-growth scenarios.
- Profit Share: Firms received a lower profit share.
- Household Inequality: The Gini coefficient for household wealth was higher in zero-growth scenarios, driven by the accumulation of savings by employed workers in a low-unemployment environment.

B. Microeconomic Dynamics

Market Concentration: Zero-growth led to higher market concentration (higher HHI). Large firms and banks dominated the market, while small firms struggled.
Firm Survival: Large firms and banks survived longer in zero-growth scenarios, whereas small firms had similar or slightly lower survival rates.
Default Probabilities:
- Normal Times: Default probabilities were generally lower in zero-growth scenarios.
- Crisis Times: During crises, default probabilities for firms increased sharply in zero-growth scenarios, exceeding those in growth scenarios.
Systemic Risk (ESL): Paradoxically, while crises were more severe in terms of GDP loss, the Expected Systemic Loss (ESL) relative to GDP was lower in zero-growth scenarios. This suggests that while the flow of economic activity is disrupted more often, the stock of assets lost through credit network cascades is reduced.

C. Inflation

Zero-growth scenarios exhibited higher inflation rates. The authors attribute this to the identity $g_P \approx g_w - g_a$ (Inflation $\approx$ Wage Growth - Productivity Growth). With productivity growth at zero and wages rising (due to tight labor markets), inflation is structurally higher.

5. Significance and Implications

Viability of Zero-Growth: The study concludes that a zero-growth capitalist economy is economically viable and does not lead to immediate systemic collapse. It can sustain lower unemployment and a higher wage share.
The Trade-off: The transition to zero-growth involves a trade-off: reduced systemic credit risk and better labor outcomes come at the cost of more frequent, severe crises, higher inflation, and increased market concentration.
Policy Recommendations:
- Competition Policy: Due to increased market concentration, active government intervention is required to prevent monopolies and support small firms.
- Fiscal Policy: To counteract the redistributive effects of higher inflation (which typically favors capital owners), active fiscal policy is necessary.
- Crisis Management: The higher severity of crises in zero-growth scenarios suggests a need for robust safety nets and counter-cyclical mechanisms.
Theoretical Shift: The findings challenge the notion that growth is the only way to maintain stability in a capitalist system. Instead, they suggest that zero-growth reconfigures economic dynamics, shifting risks from the credit network (systemic asset loss) to the real economy (GDP volatility and firm bankruptcies).

Conclusion

The PG-DYNAMIN model demonstrates that while a zero-growth trajectory is stable in terms of asset preservation and labor welfare, it fundamentally alters the nature of economic instability. It shifts the economy toward a state of lower volatility but higher crisis frequency, characterized by high inflation and market consolidation. The paper argues that the end of growth is not a path to instability per se, but a transition to a distinct economic regime requiring different policy tools to manage distributional consequences and crisis severity.