ppml_simulation version 1

This script estimates a gravity model of international trade based on a setting file, setup.csv. In the setup file, one can choose his or her desired number of simulations, s, number of countries, c, the number of time periods, t, and the true parameters, b. This script allows multiple settings. Please save your desired settings by rows.

The estimated model

export = exp(Xb + exporter time fixed effects + importer time fixed effects + e).

To note that, there is no constant term in this model. The exporter and importer fixed effects, and the error term, e, are generated from a standard normal distribution, N(0, 1). The exogenous control variable, X, follows a uniform distribution range from negative one to positive one, u(-1, 1).

The setup file

• n_simulation: integer, the number of simulations.
• n_countries: integer, the number of countries.
• n_year: integer, the number of year.
• b: an array of true parameters countained in square brackets and separated by commas. For example, [1, -1].
• drop_importer_each_year: set to 1 to drop one importer fixed effect each year; set to 0 to drop only the first year importer fixed effect. For example, if the data include three countries and two years, there will be six (3 x 2 = 6) exporter dummies and four (3 x 2 - 2 = 4) importer dummies when drop_importer_each_year equals to 1.

The estimation program

• main.m: use local machine.
• par_main.m: use local machine and parallel computing method.
• cloud_main.m: use Techila and Google Cloud computing method. For details in installing, please visit this website; for details in implementing on Matlab, please visit this website.