Units of measurement and the inverse hyperbolic sine transformation
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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.
Original language | English |
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Journal | The Econometrics Journal |
Volume | 24 |
Issue number | 2 |
Pages (from-to) | 334–351 |
Number of pages | 18 |
ISSN | 1368-4221 |
DOIs | |
Publication status | Published - 2021 |
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