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

Sarah Brown (), Pulak Ghosh (), Bhuvanesh Pareek () and Karl Taylor ()
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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

No 2017011, Working Papers from The University of Sheffield, Department of Economics

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.

Keywords: Bayesian Modelling; Financial Hardship; Saving; Zero Inflation (search for similar items in EconPapers)
JEL-codes: C11 D12 D14 R20 (search for similar items in EconPapers)
Date: 2017-08
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http://www.sheffield.ac.uk/economics/research/serps/articles/2017_011 First version, August 2017 (application/pdf)

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