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Modelling Household Debt and Financial Assets: A Bayesian Approach to a Bivariate Two-Part Model

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Author Info

  • Li Su

    (MRC Biostatistics Unit, Cambridge, UK)

  • Sarah Brown

    ()
    (Department of Economics, The University of Sheffield)

  • Pulak Ghosh

    (Department of Quantitative Methods and Information Systems, Indian Institute of Management at Bangalore, India)

  • Karl Taylor

    ()
    (Department of Economics, The University of Sheffield)

Abstract

In this paper, we contribute to the empirical literature on household finances by introducing a Bayesian bivariate two-part model. With correlated random effects, the proposed approach allows for the potential interdependence between the holding of assets and debt at the household level and also encompasses a two-part process to allow for differences in the influences of the independent variables on the decision to hold debt or assets and the influences of the independent variables on the amount of debt or assets held. Finally, we also incorporate joint modelling of household size into the framework to allow for the fact that the debt and asset information is collected at the household level and hence household size may be strongly correlated with household debt and assets. Our findings endorse our joint modelling approach and, furthermore, confirm that certain explanatory variables exert different influences on the binary and continuous parts of the model.

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File URL: http://www.shef.ac.uk/economics/research/serps/articles/2012_009.html
File Function: First version, 2012
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Bibliographic Info

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2012009.

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Length: 37 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:shf:wpaper:2012009

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Keywords: Assets; Bayesian Approach; bridge distribution; debt; two-Part model;

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