Lakhasly

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 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.The data lag is the time it takes for policymakers to obtain the data that describe what is happening in the economy.1.2.

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.

1. 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.


2. 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.