Outside lag
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In economics, the outside lag is the amount of time it takes for a government or central bank's actions, in the form of either monetary or fiscal policy, to have a noticeable effect on the economy.[1] Its converse is the inside lag, the amount of time it takes the policy authority to recognize that a situation calls for a policy response and to decide on that response and implement it.
The outside lag can be a major problem, and must be taken into account in deciding what expansionary or contractionary policy actions to implement and, indeed, whether to implement any at all.
Suppose, for example, that the main thrust of a policy action's effects on the economy is expected to be felt 20 months after the policy action is taken. Then any action chosen to be implemented now would have to be in response not to the economic situation now, but rather the economic situation that is predicted to prevail 20 months from now; since economic prediction is very difficult, active use of monetary or fiscal policy could actually have a destabilizing effect, an example of the law of unintended consequences.
