CIRJE-F-448. Lee, Jeong-Joon and Yasuyuki Sawada, "The Degree of Precautionary Saving: A Reexamination", November 2006.

Extending Dynan's methodology (1993), we show that a significant frac tion of the prudence parameter puzzle can be explained by a downward omitted variable bias. Further, the estimated prudence is substantially higher for liquidity-constrained households.