Mideterm 1: Basic Econometrics

Professor: Santiago Saavedra

February 13th 2020

Name:

• Show the procedure or proof for each answer

• You have 110 minutes.

• Cellphones, calculators and other electronics are not allowed

• Any fraud will be treated according to University’s policy

• Φ(0.84) = 80%, Φ(1.04) = 85%, Φ(1.15) = 87.5%, Φ(1.28) = 90%

• Φ(1.44) = 92.5%, Φ(1.64) = 95%, Φ(1.96) = 97.5%

1. (40pts) Santiago has data on coca cultivation measured in hectares (cocaHA) for the
year 2010 for each grid square that ever grew coca in Colombia. For each square he
calculates the distance in kilometers to the closest road (disviakm). Then he runs the
following regression:

(a) Interpret the coefficient of disviakm in the regression

(b) According to the model, what is the distance from the grid square to the closest
road if we predict it has 1 hectare of coca?
(c) According to the model, what is the predicted number of coca hectares for a grid
square that has a road?

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 (d) Find a confidence interval at the 90% for the coefficient of the constant
(e) Find the sum of squared residuals of the regression
(f) Can we reject at the 99% level that road distance is not associated with coca
cultivation?
(g) If the average distance from a grid square to a road is 44km, what is the average
coca cultivation on a grid square?
(h) If distance is now measured in meters and we re-run the regression, what is the
new slope?

2. (25pts) Given (X1 , Y1 ) = (−1, 1), (X2 , Y2 ) = (0, 0) y (X3 , Y3 ) = (1, 2). If we run an OLS
regression with Y as dependent variable, X as the independent variable and a constant.

(a) Find the OLS estimated coefficients

(b) Find Yˆ3
(c) If we include (X4 , Y4 ) = (0, 1) in the regression, what are the new OLS coefficients?
(d) Which regression, (a) or (c), has a smaller R2 ?
(e) Which regression, (a) or (c), has a smaller SER?

3. (10pts) Do you expect the data of the following experiments satisfy the OLS assump-
tions? Explain why and be specific if a given assumption is violated

(a) A Randomized Control Trial to study the effect of a conditional cash transfers on
kid’s height
(b) An experiment on vaccination where we asked each person vaccinated to recom-
mend another person to be surveyed

4. (25pts) We have 2n observations where the first n satisfy (Xi , Yi ) = (i, i) and the other
n satisfy (Xn+i , Yn+i ) = (i, −i). We estimate Yi = β0 + β1 Xi + ui

(a) Make a scatter plot of the data

(b) Find Ȳ
(c) Find βˆ1
(d) Find βˆ0
(e) Find the R2 of the regression