The solution of economic equilibrium problems is an important component in the prediction of economic activities in the manufacturing and service areas. One of the aims of our current research in economic equilibria is to develop a nonlinear complementarity formulation of the integrating module for NEMS (National Energy Modeling System), a modeling system of U.S. energy markets for the 1990-2010 period. NEMS is used to prepare baseline forecasts of domestic energy markets and to analyze the potential impact of proposed goverment policies.
As part of this research we have developed an algorithm for the solution of the large-scale nonlinear complementarity problems that arise in NEMS. Unlike other algorithms, our algorithm requires no special starting point. Moreover, each iteration only requires the solution of systems of linear equations, rather than the solution of a quadratic programming problem. Additional advantages of our algorithm include guaranteed convergence to a solution under reasonable regularity assumptions and the ability to control the rate of convergence by user-supplied tolerances. These properties promise relief for the convergence problems currently being experienced by the NEMS algorithm.