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Log transformation of the dependent variable in a first-differences model
Log transformation of the dependent variable in a first-differences model

Hello all,

I am estimating a first differences model of the following form ΔY_it = ß₀ + ß₁ΔX_it + ɛ_it.

In one of the regressions estimated, the dependent variable is wages. As I am more interested in the percentage change than the level change, I want to use the logarithm for the dependent variable.

Do I have to use log(wage_it+1 - wage_it) or log(wage_it+1) - log(wage_it) as my dependent variable?

Thank you!

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Log transformation of the dependent variable in a first-differences model

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