Simulation Vignette for FETWFE: From Coefficients to True Treatment Effects
In fetwfe: Fused Extended Two-Way Fixed Effects

knitr::opts_chunk$set(
  collapse = TRUE,
  comment = "#>"
)
knitr::opts_chunk$set(echo = TRUE)

# Load necessary libraries
library(dplyr)
library(fetwfe)

Introduction

This vignette demonstrates how to conduct simulation studies with the {fetwfe} package. In particular, we will:

Generate a vector of coefficients with genCoefs(). These coefficients produce unit‐and‐time specific responses that respect difference‐in‐differences assumptions (e.g., conditional parallel trends) and the sparsity assumptions behind FETWFE.
Simulate a panel data set with simulateData().
Estimate treatment effects via the FETWFE estimator with fetwfeWithSimulatedData().
Extract the true treatment effects using getTes().

The workflow here follows the simulation‐study design outlined in the paper, so you may wish to skim its setup section for additional context.

Simulation Workflow Using Piping

Below is a complete simulation pipeline, step by step.

Step 1: Generate Simulation Coefficients

The genCoefs() function returns an object of class "FETWFE_coefs", containing both the coefficient vector and its simulation parameters. In this example we set:

R (number of treated cohorts) = 3
T (number of time periods) = 6
d (number of covariates) = 2
density (sparsity level) = 0.1
eff_size (effect‐size multiplier) = 2

# Generate the coefficient object for simulation
sim_coefs <- genCoefs(
  R         = 3, 
  T         = 4, 
  d         = 2, 
  density   = 0.1, 
  eff_size  = 2, 
  seed      = 101
)

(Again, for more details on the meaning of these parameters, see the simulation study section of the paper.)

Step 2: Simulate Panel Data

Next, we simulate a panel data set using the generated coefficient object with the simulateData() function. With simulateData(), we generate:

N units, each assigned to one of the cohorts
Time‐invariant covariates drawn from a specified distribution
Outcomes at times 1 through T, using our simulated coefficients

Here we choose:

N (number of units) as 60,
sig_eps_sq (observation-level noise variance) as 1,
sig_eps_c_sq (unit-level noise variance) as 1, and
use the default "gaussian" distribution for the covariates.

# Simulate panel data based on the coefficients
sim_data <- simulateData(
  sim_coefs,
  N = 60,
  sig_eps_sq = 1,
  sig_eps_c_sq = 1,
  distribution = "gaussian"
  )

The dataframe is stored in sim_data$pdata, so we can take a quick look at the results:

head(sim_data$pdata)

Step 3: Run the FETWFE Estimator on Simulated Data

We then run the estimator on the simulated data using fetwfeWithSimulatedData(). (We could get the same results by manually unpacking sim_data and passing the arguments appropriately to fewtfe(). fetwfeWithSimulatedData() is just a wrapper function that takes care of this for us.)

result <- fetwfeWithSimulatedData(sim_data)

We can now extract the results from result in the same way that we can with the standard fetwfe() function.

summary(result)

Step 4: Extract True Treatment Effects

To evaluate the estimated ATT, we can compute the true treatment effects using the original coefficient object. The getTes() function extracts both the overall average treatment effect and the cohort-specific effects.

# Extract the true treatment effects
true_tes <- getTes(sim_coefs)

# Print the true overall treatment effect
cat("True Overall ATT:", true_tes$att_true, "\n")

# Print the cohort-specific treatment effects
print(true_tes$actual_cohort_tes)

We can use this to calculate metrics to evaluate our estimated treatment effect, like squared error:

squared_error <- (result$att_hat - true_tes$att_true)^2

cat("Squared error of ATT estimate:", squared_error, "\n")

Combining the Workflow in One Pipeline

You can also chain the simulation functions together with the pipe operator. The following code generates the coefficients, simulates the data, and runs the estimator all in one pipeline:

coefs <- genCoefs(R = 3, T = 4, d = 2, density = 0.1, eff_size = 2, seed = 2025)

result_piped <- coefs |>
  simulateData(N = 60, sig_eps_sq = 1, sig_eps_c_sq = 1) |>
  fetwfeWithSimulatedData()

cat("Estimated Overall ATT from piped workflow:", result_piped$att_hat, "\n")

true_tes_piped <- coefs |> getTes()

# Print the true overall treatment effect
cat("True Overall ATT:", true_tes_piped$att_true, "\n")

# Print the squared estimation error
squared_error_piped = (result_piped$att_hat - true_tes_piped$att_true)^2

cat("Squared estimation error:", squared_error_piped, "\n")

Conclusion

In this vignette, we walked through how to use the simulation functions in the {fetwfe} package to simulate data and run simulations similar to the ones in the simulation studies section of the FETWFE paper.

This pipeline streamlines simulation experiments so you can rapidly evaluate FETWFE’s performance under varying scenarios. For more details, consult the package documentation or reach out to the author.