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

42 Pages Posted: 31 Aug 2017

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

Bhuvanesh Pareek

Indian Institute of Management (IIM), Indore

Karl Taylor

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

JEL Classification: C11, D12, D14, R20

Suggested Citation

Brown, Sarah and Ghosh, Pulak and Pareek, Bhuvanesh and Taylor, Karl B., Financial Hardship and Saving Behaviour: Bayesian Analysis of British Panel Data. IZA Discussion Paper No. 10910. Available at SSRN: https://ssrn.com/abstract=3029780

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

Bhuvanesh Pareek

Indian Institute of Management (IIM), Indore ( email )

Prabandh Sikhar
Rau-Pithampur Road
Indore, Madhya Pradesh 453331
India

Karl B. Taylor

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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