The One-Sector Growth Model With Idiosyncratic Shocks

Abstract

This paper investigates the one-sector growth model where agents experience idiosyncratic endowment shocks and face a borrowing constraint. It is shown that a steady-state capital level lies strictly above the steady state in the model without shocks. In addition, the capital stock increases monotonically when it is sufficiently far below a steady state. However, near a steady state there can be interesting (nonmonotonic) economic dynamics.

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