Has the U.S. economy really become less correlated with that of the rest of the world?

Cross-country correlation coefficients indicate that the U.S. economy has become less correlated with that of the rest of the world during the last 40 years. However, once adjustments for the lower variability experienced in the U.S. since the early 1980s are made, the cross-country correlation coefficient for output is revealed to have increased. A simple time series model is also presented to challenge the widely held view that lower (or higher) volatility causes correlations to be biased downward (or upward). This model could yield higher correlations in an environment with lower variability and vice versa, and empirical evidence, among some of the macroeconomic variables studied in this paper, is provided for the model.