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Elasticities and the Inverse Hyperbolic Sine Transformation
Author(s) -
Bellemare Marc F.,
Wichman Casey J.
Publication year - 2020
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12325
Subject(s) - transformation (genetics) , inverse hyperbolic function , inverse , logarithm , sine , hyperbolic function , mathematics , variable (mathematics) , inverse trigonometric functions , natural logarithm , mathematical analysis , hyperbolic manifold , geometry , biochemistry , chemistry , gene
Applied econometricians frequently apply the inverse hyperbolic sine (or arcsinh) transformation to a variable because it approximates the natural logarithm of that variable and allows retaining zero‐valued observations. We provide derivations of elasticities in common applications of the inverse hyperbolic sine transformation and show empirically that the difference in elasticities driven by ad hoc transformations can be substantial. We conclude by offering practical guidance for applied researchers.