Re: st: Re: Transforming Inflation

[Nick Cox <njcoxstata@gmail.com>]

Well, have you tried plotting it?

twoway function (x/100)/((100 +x)/100), ra(-100 100)

is monotonic, but not at all symmetric about 0. If this were my
problem, I would prefer my previous suggestion.

On Fri, Mar 25, 2011 at 7:16 PM, ajjee <ajjee1@yahoo.com> wrote:
> Thanks Nick
>
> You are absolutely right about the second formula....i was computing the
> wrong. The correct formula is
> transformed_inflation=(inflation/100)/((100 +inflation)/100), as you
> mentioned. And this has no sign problems.
>
> Thanks again
>
> ajjee
>
>
>
> On 25 March 2011 19:57, Nick Cox <njcoxstata@gmail.com> 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 <ajjee1@yahoo.com> 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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