Publication type
Research Paper
Series Number
10910
Series
IZA Discussion Papers
Authors
Publication date
July 15, 2017
Summary:
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.
Subjects
Link
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3029780
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