ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In economics, the inside lag (or inside recognition and decision lag) is the amount of time it takes for a government or a central bank to respond to a shock in the economy. It is the delay in implementation of a fiscal policy or monetary policy.

Detailed explanation-2: -While the inside lag is longer and highly variable for fiscal policies, the outside lag for monetary policies amounts to anywhere between twelve to eighteen months, and only a few months for fiscal policy.

Detailed explanation-3: -But investors, economists and policymakers be warned: there are long and variable lags between when monetary policy changes and when those changes show up in economic data. The effects of tightening monetary policy sometimes don’t show up until six to 24 months after the end of a tightening cycle.

Detailed explanation-4: -Fiscal policy’s longest lag is the recognition lag.