Computing equilibria in the general equilibrium model with incomplete asset markets

Karl H Schmedders*

*Corresponding author for this work

Research output: Contribution to journalArticle

25 Scopus citations

Abstract

We present an intuitive homotopy algorithm for the computation of equilibria in the general equilibrium model with incomplete asset markets. The central concept is the introduction of utility maximization problems for all but one agent with penalties for transactions on the asset markets. We compute equilibria with homotopy path-following techniques using the first-order conditions of the agents' optimization problems and gradually lifting the penalty restriction as the algorithm proceeds. Finally, we present computational results from an implementation of the algorithm, showing convincingly that the algorithm is very reliable in general and suitable for large-scale computations.

Original languageEnglish (US)
Pages (from-to)1375-1401
Number of pages27
JournalJournal of Economic Dynamics and Control
Volume22
Issue number8-9
DOIs
StatePublished - Jul 3 1998

Keywords

  • C63
  • C68
  • Computation of equilibria
  • General equilibrium
  • Homotopy path-following
  • Incomplete asset markets
  • Penalty function

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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