Dealing with the log of zero in regression models

Christophe Bellego () and Louis-Daniel Pape
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Christophe Bellego: CREST; ENSAE.
Authors registered in the RePEc Author Service: David Benatia

No 2019-13, Working Papers from Center for Research in Economics and Statistics

Abstract: Log-linear and log-log regressions are one of the most used statistical model. However, handling zeros in the dependent and independent variable has remained obscure despite the prevalence of the situation. In this paper, we discuss how to deal with this issue. We show that using Pseudo-Poisson Maximum Likelihood (PPML) is a good practice compared to other approximate solutions. We then introduce a new complementary solution to deal with zeros consisting in adding a positive value specific to each observation that avoids some numerical issues faced by the former.

Keywords: Log(0); Log of zero; Log-log; Bias; Elasticity; PPML (search for similar items in EconPapers)
Pages: 16 pages
Date: 2019-08-28
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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