Dealing with the Log of Zero in Regression Models
Série des Documents de Travail n° 2019-13
16 Pages Posted: 5 Sep 2019
Date Written: August 28, 2019
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
JEL Classification: C18, C51, C87
Suggested Citation: Suggested Citation