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.