Policy Lags
Policy lags are the delays—recognition, implementation/administrative, and impact—between an economic problem and when stabilization policy actually affects the economy.
The recognition lag is the time to gather data and confirm a downturn or boom; the implementation (or legislative/administrative) lag is the time to enact and put policy into action; and the impact lag is the time before the policy works through the economy. Fiscal policy usually has long recognition and implementation lags because legislation is slow, while monetary policy acts faster on decisions but has a long impact lag on output and inflation. Because of these lags, discretionary policy can arrive too late and even destabilize the cycle—a key argument for automatic stabilizers and policy rules. AP questions often contrast fiscal and monetary lags directly.