Units of measurement and the inverse hyperbolic sine transformation

By G. B. Aïhounton, Arne Henningsen. Econometrics Journal, 2020

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The inverse hyperbolic sine (IHS) transformation is frequently applied in econometric studies to transform right-skewed variables that include zero or negative values. We show that regression results can heavily depend on the units of measurement of IHS-transformed variables. Hence, arbitrary choices regarding the units of measurement for these variables can have a considerable effect on recommendations for policies or business decisions. In order to address this problem, we suggest a procedure for choosing units of measurement for IHS-transformed variables. A Monte Carlo simulation assesses this procedure under various scenarios, and an empirical illustration shows the relevance and applicability of our suggested procedure.

Subfields: Applied Mathematics, Artificial Intelligence, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/856aafc6169b5def368224b62b671c6396cb886e