The first difference of the logarithm of Yt equals
A)the first difference of Y.
B)the difference between the lead and the lag of Y.
C)approximately the growth rate of Y when the growth rate is small.
D)the growth rate of Y exactly.

Question

Quizplus · Accepted Answer

The first difference of the logarithm of Yt is approximately equal to the percentage change in Yt when the growth rate is small (i.e. over a short period of time). This is known as the continuous compounding approximation and is the basis for using log-differencing to measure growth rates. Therefore, option C is the best choice. The other options are not true in general.

The First Difference of the Logarithm of Yt Equals