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The protective role of saving: Bayesian analysis of British panel data

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  • Brown, Sarah
  • Ghosh, Pulak
  • Pareek, Bhuvanesh
  • Taylor, Karl

Abstract

We explore whether a protective role for savings against future financial hardship exists using household level panel data for a nationally representative sample of UK households. We jointly model the incidence and extent of financial problems, using a dynamic two-part approach allowing different data-generating processes for experiencing financial hardship and the extent of financial hardship experienced. Our results show that: (i) saving on a regular basis mitigates against the likelihood of experiencing, as well as the number of, future financial problems; (ii) state dependence in financial problems exists; (iii) interdependence exists between financial problems and housing costs, with higher housing costs associated with an increased probability of experiencing financial hardship.

Suggested Citation

  • Brown, Sarah & Ghosh, Pulak & Pareek, Bhuvanesh & Taylor, Karl, 2021. "The protective role of saving: Bayesian analysis of British panel data," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 57-72.
    • Handle: RePEc:eee:empfin:v:63:y:2021:i:c:p:57-72
    DOI: 10.1016/j.jempfin.2021.05.002
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    More about this item

    Keywords

    Bayesian modelling; Financial hardship; Saving; Zero inflation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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