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Re: st: Transforming Inflation
From
Nick Cox <[email protected]>
To
[email protected]
Subject
Re: st: Transforming Inflation
Date
Fri, 25 Mar 2011 19:27:02 +0000
Seemingly, my last comment in my previous was wrong too. Meaning, the
last comment in the first is confirmed by Ajjee.
On Fri, Mar 25, 2011 at 7:06 PM, Nick Cox <[email protected]> wrote:
> Note also a family resemblance to another Stata function:
>
> This is also cond(x < 0, -reldif(0, x), reldif(0, x))
>
> When exploring such functions, I often fire up -twoway function-, e.g.
>
> twoway function cond(x < 0, -reldif(0, x), reldif(0, x)) , ra(-100 100)
>
> My last comment in my previous was wrong.
>
> On Fri, Mar 25, 2011 at 6:57 PM, Nick Cox <[email protected]> wrote:
>> Deflating inflation! Can you do it for real too?
>>
>> Applying that transform is indeed quite absurd for negative values;
>> note that it is undefined for x = -1. I don't think there is any
>> singularity at 1% deflation.
>>
>> A generalisation that makes the transform symmetric about zero is
>>
>> sign(x) * abs(x)/(1 +abs(x))
>>
>> By intent, this is monotonic and preserves sign, which seem
>> economically reasonable too.
>>
>> I discuss a bundle of related issues in
>>
>> Cox, N.J. 2011. Stata tip 96: Cube roots.
>> The Stata Journal 11(1): 149-154.
>>
>> I make a case for cube roots being the simplest shape-changing
>> transformation that preserves sign and is applicable to negative, zero
>> and positive values alike.
>>
>> Shouldn't the second formula be
>>
>> transformed_inflation=(inflation/100)/((100 +inflation)/100)
>>
>> On Fri, Mar 25, 2011 at 6:40 PM, ajjee <[email protected]> wrote:
>>
>>> My question is not related to Stata but I have a technical problem in
>>> computing a variable. In estimation, normally we transform our inflation
>>> variable to reduce the influence of extreme observations by the formula:
>>>
>>> transformed_inflation=(inflation)/(1+inflation) or sometime
>>> transformed_inflation=(inflation/100)/((1+inflation)/100)
>>>
>>> But if the value of the variable is negative, say (-1.0666355), the
>>> resultant value is (16.00701) by the first formula which is misleading. What
>>> should be done in this situation?
>>
>
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