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The existence and persistence of household financial hardship: A Bayesian multivariate dynamic logit framework

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

Abstract

We investigate the existence and persistence of financial hardship at the household level using data from the British Household Panel Survey. Our modelling strategy makes three important contributions to the existing literature on household finances. Firstly, we model nine different types of household financial problems within a joint framework, allowing for correlation in the random effects across the nine equations. Secondly, we develop a dynamic framework in order to model the persistence of financial problems over time by extending our multi-equation framework to allow the presence or otherwise of different types of financial problems in the previous time period to influence the probability that the household currently experiences such problems. Our third contribution relates to the possibility that experiencing financial problems may be correlated with sample attrition. We model missing observations in the panel in order to allow for such attrition. Our modelling framework allows us to identify any persistence in financial problems over time as well as any interdependence that may exist between different types of financial problems. Our findings reveal interesting variations in the determinants of experiencing different types of financial problems including demographic and regional differences. Our findings also highlight persistence in experiencing financial problems over time as well as the role that saving on a regular basis can play in mitigating current financial problems.

Suggested Citation

  • Brown, Sarah & Ghosh, Pulak & Taylor, Karl, 2014. "The existence and persistence of household financial hardship: A Bayesian multivariate dynamic logit framework," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 285-298.
  • Handle: RePEc:eee:jbfina:v:46:y:2014:i:c:p:285-298
    DOI: 10.1016/j.jbankfin.2014.05.022
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    References listed on IDEAS

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    Cited by:

    1. Pigini, Claudia & Presbitero, Andrea F. & Zazzaro, Alberto, 2016. "State dependence in access to credit," Journal of Financial Stability, Elsevier, vol. 27(C), pages 17-34.
    2. repec:jss:jstsof:v:079:i08 is not listed on IDEAS
    3. Lucchetti, Riccardo & Pigini, Claudia, 2017. "DPB: Dynamic Panel Binary Data Models in gretl," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 79(i08).
    4. Francesco Bartolucci & Claudia Pigini, 2017. "Granger causality in dynamic binary short panel data models," Working Papers 421, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

    More about this item

    Keywords

    Financial problems; Multivariate dynamic logit model; Sample attrition;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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