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

Li Su, Sarah Brown (), Pulak Ghosh and Karl Taylor
Additional contact information
Li Su: MRC Biostatistics Unit, Cambridge, UK
Pulak Ghosh: Department of Quantitative Methods and Information Systems, Indian Institute of Management at Bangalore, India

No 2012009, Working Papers from The University of Sheffield, Department of Economics

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.

Keywords: Assets; Bayesian Approach; bridge distribution; debt; two-Part model (search for similar items in EconPapers)
JEL-codes: C11 C33 D14 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012
New Economics Papers: this item is included in nep-ban and nep-ecm
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http://www.shef.ac.uk/economics/research/serps/articles/2012_009.html First version, 2012 (application/pdf)

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