All economic policy does not happen instantaneously. Government policy is subject to time lags, which are time restraints that limit the ability to recognise and respond to changes in the economy.

Recognition Lag

The time is taken to realise a change in the economy. Governments often use more reliable lagging indicators, such as GDP figures, which can report on economic data from up to three months ago.

Decision Lag

The time is taken to decide on an appropriate course of action in response to a change in the economy. This includes the time taken for an economic policy to pass both houses of government.

Action Lag

The time is taken to implement an economic policy. Economic policy such as infrastructure spending can take over a period of years to plan before the main spending is even initiated.

Effect Lag

The time taken for an economic policy to cause its intended effect on the economy.