Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data

40 Pages Posted: 12 Jul 2014

See all articles by Sarah Brown

Sarah Brown

University of Sheffield - Department of Economics; IZA Institute of Labor Economics

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Karl Taylor

University of Sheffield - Department of Economics

Abstract

We investigate the relationship between social interaction and household finances using data from the British Household Panel Survey. We contribute to the existing literature by exploring the relationship between a wide range of aspects of household finances and social interaction, rather than focusing one particular facet of household finances, such as the holding of stocks and shares. To be specific, we develop a Bayesian statistical framework to simultaneously explore both sides of the household balance sheet, i.e. liabilities and assets. Additionally, we allow the influence of social interaction on household finances to be time dependent, which enables us to model the effects of social interaction from a dynamic perspective.We also develop a two-part model to jointly investigate the influence of social interaction on the amount of different types of debt and financial assets held conditional on holding the different types of debt and assets. The analysis suggests that the effect of social interaction is not just restricted to share ownership, with positive effects found for both assets and liabilities. Our analysis also suggests that social interaction is associated with households holding larger amounts of both debt (unsecured and secured) and assets (property and non-housing), even after conditioning on the probability of possessing liabilities and/or assets.

Keywords: assets, debt, household finances, social interaction

JEL Classification: D12, D14, C11

Suggested Citation

Brown, Sarah and Ghosh, Pulak and Taylor, Karl B., Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data. IZA Discussion Paper No. 8301. Available at SSRN: https://ssrn.com/abstract=2465336

Sarah Brown (Contact Author)

University of Sheffield - Department of Economics

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Karl B. Taylor

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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