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Financial Hardship and Saving Behaviour: Bayesian Analysis of British Panel Data

Author

Listed:
  • Sarah Brown

    (Department of Economics, University of Sheffield)

  • Pulak Ghosh

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

  • Bhuvanesh Pareek

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

  • Karl Taylor

    (Department of Economics, University of Sheffield)

Abstract

We explore whether a protective role for savings against future financial hardship exists using household level panel data. We jointly model the incidence and extent of financial problems, as well as the likelihood of having secured debt and the amount of monthly secured debt repayments, allowing for dynamics and interdependence in both of the two-part outcomes. A two-part process is important given the considerable inflation at zero when analysing financial problems. The model is estimated using a flexible Bayesian approach with correlated random effects and the findings suggest that: (i) saving on a regular basis mitigates both 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 secured debt, specifically higher levels of mortgage debt are associated with an increased probability of experiencing financial hardship.

Suggested Citation

  • Sarah Brown & Pulak Ghosh & Bhuvanesh Pareek & Karl Taylor, 2017. "Financial Hardship and Saving Behaviour: Bayesian Analysis of British Panel Data," Working Papers 2017011, The University of Sheffield, Department of Economics.
  • Handle: RePEc:shf:wpaper:2017011
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2017_011
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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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