"This paper explores the link between short-run cycles and long-run growth by examining the cyclicality of R&D. Existing theories propose that R&D is concentrated when output is low, but aggregate data repeatedly show that R&D appears procyclical. We estimate the relationship between R&D and output at the disaggregated industry level, using an annual panel of 20 U.S. manufacturing industries from 1958 to 1998. The results indicate that R&D is in fact procyclical, but interestingly, estimates using demand-shift instruments suggest that R&D responds asymmetrically to demand shocks. We discuss the possibilities that liquidity constraints and technology improvement cause the observed procyclicality of R&D"--Federal Reserve Bank of Cleveland web site.