Dealing with Logs and Zeros in Regression Models

Christophe Bellégo (), David Benatia and Louis-Daniel Pape
Additional contact information
Christophe Bellégo: CREST (UMR 9194), ENSAE, Institut Polytechnique de Paris

No 2022-08, Working Papers from Center for Research in Economics and Statistics

Abstract: Log-linear models are prevalent in empirical research. Yet, how to handle zeros in the dependent variable remains an unsettled issue. This article clarifies it and addresses the “log of zero” by developing a new family of estimators called iterated Ordinary Least Squares (iOLS). This family nests standard approaches such as log-linear and Poisson regressions, offers several computational advantages, and corresponds to the correct way to perform the popular log(Y + 1) transformation. We extend it to the endogenous regressor setting (i2SLS) and overcome other common issues with Poisson models, such as controlling for many fixed-effects. We also develop specification tests to help researchers select between alternative estimators. Finally, our methods are illustrated through numerical simulations and replications of landmark publications.

Keywords: Contraction mapping; Elasticity; Gravity model; Iterative estimator; Log-linear; Selection bias (search for similar items in EconPapers)
JEL-codes: C26 C52 C55 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2022-03-22
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://crest.science/RePEc/wpstorage/2022-08.pdf CREST working paper version (application/pdf)

Related works:
Working Paper: Dealing with Logs and Zeros in Regression Models (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:crs:wpaper:2022-08

Access Statistics for this paper

More papers in Working Papers from Center for Research in Economics and Statistics Contact information at EDIRC.
Bibliographic data for series maintained by Secretariat General () and Murielle Jules Maintainer-Email : murielle.jules@ensae.Fr.