1.

Deforestation
ThisfilecontainsacrosssectionofdataforN=70tropicalcountries
onthefollowingvariables:
forestloss=theaverageannualforestlossovertheperiod1981to
1990expressedasapercentageoftotalforestedarea
popdens=thenumberofpeopleperthousandhectarescropch=the
percentageincreaseincroplandfrom1980to1990pasturech=the
percentageincreaseinpermanentpasturefrom1980to1990
(a)ConstructandinterpretXYplotsofpopdensagainstforestloss,
cropchagainstforestloss,andpasturechagainstforestloss.Doesthe
associationbetweenthevariablesmatchwhatyouwouldexpect?
(b)Constructandinterpretdescriptivestatistics(mean,median,
standarddeviation,range,etc.)forthesefourvariables.
(c)Runasimpleregressionwithforestlossasthedependentvariable
andpopdensastheexplanatoryvariable.
(c)(i)Whatistheexpectedsignofpopdens?
(c)(ii)Estimatetheregressioncoefficientsforthisequation(copy
pastethestataresult).Whatistheinterpretationoftheeffectof
populationdensityonforestloss?
(c)(iii)Isthepopulationcoefficientstatisticallysignificantatthe
5%level?Whatisthepvalueforthiscoefficient?Performonetail
(onesided)ttestfortheestimate.
(c)(iv)InterpretR2forthisregression.

(d)Nowrunamultipleregressionwithforestlossasthedependent
variableandpopdens,cropch,andpasturechastheexplanatory
variables.
(d)(i)Estimatetheregressioncoefficientsforthisequation.Whatis
theinterpretationoftheeffectofeachexplanatoryvariableonforest
loss?
(d)(ii)Iseachexplanatoryvariablecoefficientstatistically
significantatthe5%level?Whatisthepvalueforeachcoefficient?
(d)(iii)Perform2tailsttestoncropchvariable!
(d)(iv)ComparetheRforyourregressionin(e)and(d).Also,
comparetheAdjustedRforthisregressiontotheregressionin(d).
(d)(v)Also,conductanFtestfortheoverallsignificanceofthe
regression.
(d)(vi)ConsideringthedifferenceintheAdjustedR2,theFtest,and
thestatisticalsignificanceofthecoefficients,doesitmakesenseto
includecropchandpasturechintheregression?

2.DummyVariables
In1993EdwardSaunderspublishedanarticlethattestedthe
possibilitythatthestockmarketisaffectedbytheweatheronWall
Street.Usingdailydatafrom1962to1989,heestimatedanequation
withthefollowingsignificantvariables(standarderrorsin
parentheses):

(a)Saundersdidnotincludeanestimateoftheconstantterminhis
publishedregressionresults.Whyshouldntyouspendmuchtime
analyzingestimatesoftheconstantterm?
(b)Whichoftheclassicalassumptionswouldbeviolatedifyou
decidedtoaddadummyvariabletotheequationthatwas=1ifthe
ithdaywasaTuesday,Wednesday,Thursday,orFriday,and=0
otherwise?(Hint:thestockmarketisnotopenonweekends.)
(c)CarefullystatethemeaningofthecoefficientsofRandM,being
suretotakeintoaccountthefactthatRislaggedinthisequation
(forvalidtheoreticalreasons).
(d)ThevariableCisameasureofthepercentageofcloudcover
fromsunrisetosunsetontheithdayandreflectsthefactthat
approximately85%ofallNewYorksrainfallsondayswith100%
cloudcover.IsCadummyvariable?Whatassumptions(or

conclusions)didtheauthorhavetomaketousethisvariable?What
constraintsdoesitplaceontheequation?