What is Implementation Lag?
An implementation lag is the time elapsed between an adverse macroeconomic shock and an effort to counter the shock.
How Does Implementation Lag Work?
Let's say the United States experiences a huge increase in unemployment and huge resulting decrease in home sales in January. The financial indicators and various indices don't really reflect the extent of the damage until March because it takes that long for government analysts to collect, calculate and distribute the data.
Although the country is in turmoil, it takes another seven months for Congress to agree on how to address the problem and pass a bill that allows the Federal Reserve to take measures to stimulate the economy.
The nine months between the macroeconomic shock and the corrective action is an implementation lag.
Why Does Implementation Lag Matter?
Implementation lags are common and can be maddening. The behavior of elected officials is often the biggest determinant of the length of the implementation lag.