Why do people take logarithms in macroeconomics data?

Economics Dec 15, 2020

Expert Solution

Economists are generally interested in relative quantities in order to draw comparisons. By taking logarithms, one can interpret data in the form of growth rates or percentage of change. The rationale can be explained with the help of following example.

We know that the two following two statements are very different -

1) Somalia's GDP increased by US$ 10 million.

2) EU GDP increased by US$ 10 million.

However, when we take logs, growth is comparable.

Hence, macroeconomists prefer taking logarithms in macroeconomics data.

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