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An Interior Point Algorithm For Computing Equilibria In Economies With Incomplete Asset Markets

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Mercedes Esteban-Bravo ()

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Abstract

Computing equilibria in general equilibria models with incomplete asset (GEI) markets is technically difficult. The standard numerical methods for computing these equilibria are based on homotopy methods. Despite recent advances in computational economics, much more can be done to enlarge the catalogue of techniques for computing GEI equilibria. This paper presents an interior-point algorithm that exploits the special structure of GEI markets. We prove that the algorithm converges globally at a quadratic rate, rendering it particularly effective in solving large-scale GEI economies. To illustrate its performance, we solve relevant examples of GEI markets.

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Paper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb046023.

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Date of creation: Nov 2004
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Handle: RePEc:cte:wbrepe:wb046023

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  1. Kubler, Felix & Schmedders, Karl, 2000. "Computing Equilibria in Stochastic Finance Economies," Computational Economics, Springer, vol. 15(1-2), pages 145-72, April. [Downloadable!]
  2. Schmedders, Karl, 1998. "Computing equilibria in the general equilibrium model with incomplete asset markets," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1375-1401, August. [Downloadable!] (restricted)
  3. Mercedes Esteban-Bravo, 2004. "Computing Equilibria in General Equilibrium Models via Interior-point Methods," Computational Economics, Springer, vol. 23(2), pages 147-171, 03. [Downloadable!]
  4. Brown, Donald J & DeMarzo, Peter M & Eaves, B Curtis, 1996. "Computing Equilibria When Asset Markets Are Incomplete," Econometrica, Econometric Society, vol. 64(1), pages 1-27, January. [Downloadable!] (restricted)
  5. Michael Magill & Martine Quinzii, 2002. "Theory of Incomplete Markets, Volume 1," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262632543.
  6. Herings,P. Jean-Jacques & Kubler,Felix, 2002. "Computing Equilibria in Finance Economies," Research Memoranda 010, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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  7. Demarzo, Peter M. & Eaves, B. Curtis, 1996. "Computing equilibria of GEI by relocalization on a Grassmann manifold," Journal of Mathematical Economics, Elsevier, vol. 26(4), pages 479-497. [Downloadable!] (restricted)
  8. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier. [Downloadable!] (restricted)
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