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Units of Measurement and the Inverse Hyperbolic Sine Transformation

Ghislain B. D. Aïhounton () and Arne Henningsen
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Ghislain B. D. Aïhounton: Department of Food and Resource Economics, University of Copenhagen

No 2019/10, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: The inverse hyperbolic sine (IHS) transformation is frequently applied in econometric studies to transform right-skewed variables that include zero or negative values. We confirm a previous study that shows that regression results can largely 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 a replication of the study by Bellemare and Wichman (2019) illustrates the relevance and applicability of our suggested procedure.

Keywords: inverse hyperbolic sine; arcsinh; unit of measurement; scale factor (search for similar items in EconPapers)
JEL-codes: C1 C5 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2019-12
New Economics Papers: this item is included in nep-ecm and nep-ore
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