The one-sector growth model with idiosyncratic shocks: Steady states and dynamics

This paper investigates the one-sector growth model where agents receive idiosyncratic labor endowment shocks and face a borrowing constraint. It is shown that any steady-state capital stock lies strictly above the steady state in the model without idiosyncratic 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 non-monotonic economic dynamics.