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Precautionary Saving under LiquidityConstraints: Evidence from Rural Pakistan

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Author Info
Jeong-Joon Lee (Department of Economics, Towson University)
Yasuyuki Sawada (Faculty of Economics, University of Tokyo)

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Abstract

This paper investigates precautionary saving under liquidity constraints in Pakistan using household panel data. In particular, while we estimates Kimball's (1990) prudence parameter, we deviate from Dynan's (1993) framework by explicitly considering liquidity constraints, as in Zeldes (1989). By doing so,we attempt to diffeerentiate the standard precautionary saving caused by uncertainty from the oneduetoliquidity constraints. Furthermore, endogenous liquidity constraints are considered to resolve issues of selection biases. In this study, we document substantial evidence of the presence of precautionary saving in Pakistan. More specifically, the estimated prudence is significantly higher for liquidity-constrainedhouse-holds as compared with unconstrained ones. The results support the emerging view that facilitating saving may often be more important than finding better ways of lending to the poor.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-377.

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Length: 31 pages
Date of creation: Sep 2005
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Handle: RePEc:tky:fseres:2005cf377

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  21. Alderman, Harold, 1996. "Saving and economic shocks in rural Pakistan," Journal of Development Economics, Elsevier, vol. 51(2), pages 343-365, December. [Downloadable!] (restricted)
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  27. Sydney Ludvigson & Christina H. Paxson, 2001. "Approximation Bias In Linearized Euler Equations," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 242-256, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yasuyuki Sawada & Kazumitsu Nawata & Masako Ii & Jeong-Joon Lee, 2007. "Did the Credit Crunch in Japan Affect Household Welfare? An Augmented Euler Equation Approach Using Type 5 Tobit Model," CIRJE F-Series CIRJE-F-498, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
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