ABSTRACT
Introduction For a long time, the predominant view on growth and business cycle theory has been that the economy follows a long-run smooth evolution called trend that is disturbed by random events. According to this, business cycles are defined as deviations from trend. Implicitly, it is assumed that there is no interaction between long-run and cyclical components. This interpretation of overall macroeconomic performance consequently leads to a separate treatment of both phenomena within macroeconomic theory.
