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Keywords:

  • C32;
  • E23;
  • E24;
  • E32
  • unobserved components;
  • correlations;
  • business cycle;
  • trend GDP;
  • cyclical unemployment;
  • natural rate of unemployment

This paper estimates the permanent and transitory movements in U.S. output and the unemployment rate and the relationships between them. The results suggest that permanent movements in U.S. output and the unemployment rate are important for explaining overall fluctuations. Further, the correlation between changes in these series arises in large part due to the relationship between their permanent components.