What is the term for the time it takes for a policy's implementation to show its effects on the economy?

The term that describes the time it takes for a policy's implementation to show its effects on the economy is known as the outside lag. This concept is crucial in understanding how monetary or fiscal policies impact the economy after they have been enacted.

When a new policy is established, there is often a significant delay before its effects are felt. For instance, a government may increase spending or change interest rates, but those actions do not immediately translate into economic changes. Businesses and consumers may take time to react to the new policies, leading to a gradual adjustment rather than an immediate impact.

Outside lag specifically refers to this timeframe between the implementation of the policy and the observable effects on economic indicators such as GDP, employment rates, and inflation. It highlights the complexities policymakers face in timing their interventions effectively to stimulate or stabilize the economy.

In contrast, the inside lag refers to the time it takes for policymakers to recognize the need for a policy change and to implement the policy. This distinction is essential for understanding the overall efficacy and timing of economic policies.