According to the conventional view of the business cycle, fluctuations in output
represent temporary deviations from trend. The purpose of this paper is to question
this conventional view. If fluctuations in output are dominated by temporary deviations
from the natural rate of output, then an unexpected change in output today should
not substantially change one's forecast of output in, say, five or ten years. Our
examination of quarterly postwar United States data leads us to be skeptical about
this implication. The data suggest that an unexpected change in real GNP of 1 percent
should change one's forecast by over 1 percent over a long horizon.