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The one-sector growth model with idiosyncratic shocks

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  • Mark Huggett

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.

Suggested Citation

  • Mark Huggett, 1995. "The one-sector growth model with idiosyncratic shocks," Discussion Paper / Institute for Empirical Macroeconomics 105, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmem:105
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    Cited by:

    1. Julio Dávila & Jay H. Hong & Per Krusell & José‐Víctor Ríos‐Rull, 2012. "Constrained Efficiency in the Neoclassical Growth Model With Uninsurable Idiosyncratic Shocks," Econometrica, Econometric Society, vol. 80(6), pages 2431-2467, November.
    2. Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
    3. Angeletos, George-Marios & Calvet, Laurent-Emmanuel, 2006. "Idiosyncratic production risk, growth and the business cycle," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1095-1115, September.
    4. Michael Lechner & Rosalia Vazquez-Alvarez, 2007. "Stochastic labour market shocks, labour market programmes, and human capital formation: a theoretical and empirical analysis," Working Papers 0701, International Economics Institute, University of Valencia.
    5. Samuel Gil Martín, 2012. "Liquidity, Welfare and Distribution," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(2), pages 217-234, May.
    6. Panousi, Vasia, 2009. "Financial Integration and Capital Accumulation," MPRA Paper 24238, University Library of Munich, Germany.
    7. Gilles Joseph & Thomas Weitzenblum, 2003. "Optimal Unemployment Insurance: Transitional Dynamics vs. Steady State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 869-884, October.
    8. Carlson Mark A & King Thomas & Lewis Kurt, 2011. "Distress in the Financial Sector and Economic Activity," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-31, June.
    9. Djumashev, R, 2007. "Corruption, uncertainty and growth," MPRA Paper 3716, University Library of Munich, Germany.
    10. Gomes, Joao & Greenwood, Jeremy & Rebelo, Sergio, 2001. "Equilibrium unemployment," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 109-152, August.
    11. Angeletos, George-Marios & Panousi, Vasia, 2009. "Revisiting the supply side effects of government spending," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 137-153, March.
    12. George-Marios Angeletos, 2005. "Uninsured Idiosyncratic Investment Risk," NBER Working Papers 11180, National Bureau of Economic Research, Inc.
    13. Luisa Fuster, 2000. "Capital Accumulation in an Economy with Dynasties and Uncertain Lifetimes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 650-674, October.
    14. R. Anton Braun & Harald Uhlig, 2006. "The Welfare Enhancing Effects of a Selfish Government in the Presence of Uninsuarable, Idiosyncratic Risk," CARF F-Series CARF-F-074, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    15. George-Marios Angeletos & Vasia Panousi, 2011. "Financial Integration, Entrepreneurial Risk and Global Imbalances," NBER Working Papers 16761, National Bureau of Economic Research, Inc.
    16. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
    17. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92, National Bureau of Economic Research, Inc.
    18. Dzhumashev, Ratbek, 2008. "Corruption and Disposable Risk," MPRA Paper 11772, University Library of Munich, Germany.
    19. Ana Castañeda & Javier Díaz-Giménez & José-Víctor Ríos-Rull, "undated". ""Earnings and Wealth Inequality and Income Taxation: Quantifying the Trade-Offs of Switching to a Proportional Income Tax in the U.S.''," CARESS Working Papres 98-14, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
    20. Carlos Esteban Posada P., 1995. "Ahorro Y Modelos Macroeconómicos," Borradores de Economia 1956, Banco de la Republica.

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    Keywords

    Economic development;

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