Policy function calculation from Euler equation

 

In general, we can describe Euler equation in terms of kfs as

 

 

We find  so as to satisfy  given  and .

 

Starting from  and  that satisfy policy function ,

 

 

where  is the steady-state level of k. This holds for any k>0 if the policy function

 

crosses 45 degree line from the upper and the slope of it never drops down to negative.