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 languageEnglish
JournalThe Econometrics Journal
Volume24
Issue number2
Pages (from-to)334–351
Number of pages18
ISSN1368-4221
DOIs
Publication statusPublished - 2021

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