Elasticities and the Inverse Hyperbolic Sine Transformation

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Date

July 10, 2019

Authors

Casey Wichman and Marc F. Bellemare

Publication

Journal Article

Reading time

1 minute

Abstract

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.

Authors

Casey J. Wichman

University Fellow

Casey Wichman is a university fellow at RFF. He performs research at the intersection of environmental and public economics, with an emphasis on examining the ways in which individuals make decisions in response to environmental policies.

Marc F. Bellemare

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