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

Author

Listed:
  • Li Su

    (MRC Biostatistics Unit, Cambridge, UK)

  • Sarah Brown

    (Department of Economics, The University of Sheffield)

  • Pulak Ghosh

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

  • Karl Taylor

    (Department of Economics, The University of Sheffield)

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.

Suggested Citation

  • Li Su & Sarah Brown & Pulak Ghosh & Karl Taylor, 2012. "Modelling Household Debt and Financial Assets: A Bayesian Approach to a Bivariate Two-Part Model," Working Papers 2012009, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2012009
    as

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    File URL: http://www.shef.ac.uk/economics/research/serps/articles/2012_009.html
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    References listed on IDEAS

    as
    1. Sarah Brown & Gaia Garino & Karl Taylor, 2008. "Mortgages and Financial Expectations: A Household-Level Analysis," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 857-878, January.
    2. Sarah Brown & Karl Taylor, 2008. "Household debt and financial assets: evidence from Germany, Great Britain and the USA," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 615-643, June.
    3. Sarah Brown & Gaia Garino & Karl Taylor, 2008. "Mortgages and Financial Expectations: A Household-Level Analysis," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 857-878, January.
    4. Daniels, M.J. & Pourahmadi, M., 2009. "Modeling covariance matrices via partial autocorrelations," Journal of Multivariate Analysis, Elsevier, vol. 100(10), pages 2352-2363, November.
    5. Jonathan Crook, 2001. "The demand for household debt in the USA: evidence from the 1995 Survey of Consumer Finance," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 83-91.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Assets; Bayesian Approach; bridge distribution; debt; two-Part model;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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