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Units of measurement and the inverse hyperbolic sine transformation

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  • Ghislain B D Aihounton
  • Arne Henningsen

Abstract

SummaryThe 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.

Suggested Citation

  • Ghislain B D Aihounton & Arne Henningsen, 2021. "Units of measurement and the inverse hyperbolic sine transformation," The Econometrics Journal, Royal Economic Society, vol. 24(2), pages 334-351.
    • Handle: RePEc:oup:emjrnl:v:24:y:2021:i:2:p:334-351.
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    More about this item

    Keywords

    regression analysis; inverse hyperbolic sine; arcsinh; unit of measurement; zero values; scale factor;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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