Inside lag
In economics, the inside 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. Its converse is the outside lag. The inside lag comprises the recognition lag and the decision lag.
The inside lag is generally a more severe problem for fiscal policy than for monetary policy. Monetary policy is conducted by a central bank that is devoted substantially to monitoring and responding to economic shocks, whereas fiscal policy is conducted by a law-making body that has many other issues to confront as well as a highly deliberative process with which to confront them. Nevertheless, a central bank may often experience a substantial recognition lag prior to its becoming clear just what the latest economic figures imply for policy needs. Indeed, even after a central bank implements a policy response, its critics may still argue that it recognized the situation incorrectly.
