Lags and Policy Impl...

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Lags and Policy Implementation If policymakers could shift the aggregate demand curve instantaneously, activist policies could be used to move the economy immediately to the full-employment level, as we saw in the previous section.The legislative lag represents the time it takes to get legislation passed to implement a particular policy.The legislative lag does not apply to most monetary policy actions, such as the lowering of interest rates.1.2.3.

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Lags and Policy Implementation
If policymakers could shift the aggregate demand curve instantaneously, activist policies could be used to move the economy immediately to the full-employment level, as we saw in the previous section. However, several types of lags prevent this immediate shift from occurring, and there are differences in the lengths of these lags for monetary versus fiscal policy.

The data lag is the time it takes for policymakers to obtain the data that describe what is happening in the economy. Accurate data on GDP, for example, are not available until several months after a given quarter is over.

The recognition lag is the time it takes for policymakers to feel confident about the signals the data are sending about the future course of the economy. For example, to minimize errors, the National Bureau of Economic Research (the private organization that officially dates business cycles) will not declare the economy to be in recession until at least six months after it has determined that a recession has begun.

The legislative lag represents the time it takes to get legislation passed to implement a particular policy. The legislative lag does not apply to most monetary policy actions, such as the lowering of interest rates.

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