The cyclicality of cash flow and investment in U.S. manufacturing
It is well-known that investment
is the most cyclical
component of GNP. In addition,
the procyclicality of investment
is extremely important
in accounting for the "shortfalls" of GNP
during downturns in the economy.' What is
not well-understood is why investment is so
cyclical. A number of theories have been
proposed to explain the cyclicality of investment,
and in this study, we bring some empirical
evidence to bear on one in particular, the
"cash flow" theory.
