A Pathsearch Damped Newton Method for Computing General Equilibria

Abstract

Computable general equilibrium models and other types of variational inequalities play a key role in computational economics. This paper describes the design and implementation of a pathsearch-damped Newton method for solving such problems. Our Algorithm improves on the typical Newton method ( which generates and solves a sequence of LCP's) in both speed and robustness. The underlying complementarity problem is reformulated as a normal map so that standard algorithmic enhancements of Newton's method for solving nonlinear equations can be easily applied. The solver is implemented as a GAMS subsystem, using an interface library developed for this purpose. Computational results obtained from a number of test problems arising in economics are given.