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We measure the impact of household consumption shocks on aggregate fluctuations.
These shocks affect household consumption directly, and production and prices indirectly
through their impact on aggregate consumption. We show how to identify such shocks
using prior knowledge of their differential impact across sectoral variables. Shocks
independently affecting household consumption demand have accounted for around 40%
of business cycle fluctuations since the mid-1970s, playing a central role in recessions
within that period. The inferred household consumption shock series correlates well
with measures of changes in consumer confidence and household wealth.
