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The Existence and Persistence of Household Financial Hardship

  • Sarah Brown


    (Department of Economics, The University of Sheffield)

  • Pulak Ghosh

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

  • Karl Taylor


    (Department of Economics, The University of Sheffield)

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 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 in previous time periods can play in mitigating current financial problems.

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Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2012022.

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Length: 37 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:shf:wpaper:2012022
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  1. Mark Taylor, 2011. "Measuring Financial Capability and its Determinants Using Survey Data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 102(2), pages 297-314, June.
  2. Darrell DUFFIE & Andreas ECKNER & Guillaume HOREL & Leandro SAITA, . "Frailty Correlated Default," Swiss Finance Institute Research Paper Series 08-44, Swiss Finance Institute.
  3. Luisa ANDERLONI & Emanuele BACCHIOCCHI & Daniela VANDONE, 2011. "Household financial vulnerability: an empirical analysis," Departmental Working Papers 2011-02, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 03 Nov 2011.
  4. David Love, 2008. "The Effect of Marital Status and Children on Savings and Portfolio Choice," Department of Economics Working Papers 2008-13, Department of Economics, Williams College.
  5. Burcu Duygan-Bump & Charles Grant, 2009. "Household debt repayment behaviour: what role do institutions play?," Economic Policy, CEPR;CES;MSH, vol. 24, pages 107-140, 01.
  6. Paul S. Albert & Dean A. Follmann, 2003. "A Random Effects Transition Model For Longitudinal Binary Data With Informative Missingness," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 57(1), pages 100-111.
  7. Richard Disney & Sarah Bridges, . "Debt and depression," Discussion Papers 06/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  8. Little, Roderick J A, 1985. "A Note about Models for Selectivity Bias," Econometrica, Econometric Society, vol. 53(6), pages 1469-74, November.
  9. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, 06.
  10. Böheim, René & Taylor, Mark P., 2000. "My home was my castle: evictions and repossessions in Britain," ISER Working Paper Series 2000-04, Institute for Social and Economic Research.
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