The definition of implementation Lag’
Delay implementation of the delay between macroeconomic developments and the implementation of corrective fiscal or monetary policies of the government and the Central Bank.
Breaking down the ‘implementation lag’
There’s always a LAG after the implementation of the macroeconomic surprise. For one thing, policymakers may not even realize there is a problem, because of a delay in the data. Many economic data were not published for a month or quarter after the period to which it relates. Even then, these lagging indicators can be subject to subsequent changes. GDP data, for example, is extremely unreliable when first published, so the Bureau of economic analysis warns that its estimates are informative but never definitive.
For early warning of threats to economic policy, to look at leading indicators like surveys of business confidence, and stock and bond market indicators – like the yield curve, but economists and policymakers will still have to wait to see if these predictions come true. Then, because of the recognition lag, it may take several months or years before the policy acknowledged that there was an economic shock or structural changes in the economy. No politician is going to admit there is a possibility of a recession while they are in the middle of one of them.
Then, Central bankers, economists and politicians to discuss for the correct answer before they implement policy changes. A good policy will not necessarily be obvious, even to economists. And politicians who, of course, are political, not economic purposes, as here. Good economy – as preventing massive asset bubbles that will harm the economy when they burst — it is often bad policy. That is why the relationship between Economics and politics leads to so many mistakes of policy, and why monetary policy is so often ends up being Pro-cyclical and destabilizing, not counter-cyclical and helps to smooth the economic cycle.
Even when economists and politicians are on the same page, will continue to lag in response, before any monetary or fiscal policy affects the economy. As quantitative easing has shown it can take years before monetary policy has no real effect on the economy – as in the case when Central banks push on a string and the tax cuts can take years to be able to check the effect.