Elasticities and the Inverse Hyperbolic Sine Transformation

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  • Marc F. Bellemare
    Department of Applied Economics University of Minnesota 1994 Buford Avenue Saint Paul MN 55108 USA
  • Casey J. Wichman
    Resources for the Future 1616 P Street NW, Suite 600 Washington, DC 20036 USA

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<jats:title>Abstract</jats:title><jats:p>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.</jats:p>

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