Dealing with the Log of Zero in Regression Models

Série des Documents de Travail n° 2019-13

16 Pages Posted: 5 Sep 2019

See all articles by Christophe Bellégo

Christophe Bellégo

CREST (Center for Research in Economics and Statistics) - ENSAE (National School for Statistics and Economic Administration)

Louis-Daniel Pape

CREST - Institut Polytechnique de Paris; National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Date Written: August 28, 2019

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

JEL Classification: C18, C51, C87

Suggested Citation

Bellégo, Christophe and Pape, Louis-Daniel, Dealing with the Log of Zero in Regression Models (August 28, 2019). Série des Documents de Travail n° 2019-13. Available at SSRN: https://ssrn.com/abstract=3444996

Christophe Bellégo (Contact Author)

CREST (Center for Research in Economics and Statistics) - ENSAE (National School for Statistics and Economic Administration) ( email )

Palaiseau
France

Louis-Daniel Pape

CREST - Institut Polytechnique de Paris ( email )

Route de Saclay
Palaiseau, 91120
France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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