Abstract
This article implements an Augmented Lagrangian algorithm to compute equilibria in a general equilibrium model with incomplete markets and default. It is one of the first attempts to solve such a model on a large scale. Convergence is found for various economic parameters. We illustrate the effectiveness of this approach for simulating general equilibrium economies with a default.
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Notes
We say that the CPLD condition is satisfied at a feasible point x if the linear dependence of gradients of active constraints with non-negative coefficients corresponding to inequalities implies the linear dependence of the same gradients in a neighborhood of x.
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I am grateful to my advisor Aloisio Araujo and also to Felix Kubler, José Mario Martínez and Rodrigo Novinski for comments and suggestions. I am especially indebted to Artur Avila for several discussions on the implementation of the algorithm. I would also like to thank the referees for their detailed comments, in particular regarding the presentation and the choice of initial points. This work was supported by CNPq.
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Schommer, S. Computing equilibria in economies with incomplete markets, collateral and default penalties. Ann Oper Res 206, 367–383 (2013). https://doi.org/10.1007/s10479-012-1276-1
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DOI: https://doi.org/10.1007/s10479-012-1276-1