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.
CITATION STYLE
Aihounton, G. B. D., & Henningsen, A. (2021). Units of measurement and the inverse hyperbolic sine transformation. Econometrics Journal, 24(2), 334–351. https://doi.org/10.1093/ectj/utaa032
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