The Phenomenon of Lag in Application of the Measures of Monetary Policy

Tihomir Jovanovski and Mehmed Muric

Economic Research-Ekonomska Istraživanja, 2011, vol. 24, issue 2, 154-163

Abstract: This paper discusses the theoretical aspect of the phenomenon of lag in the application of the measures of monetary policy. Monetary and fiscal policy faces the phenomenon of lag. One of the controversial and pressing questions of monetary policy is the nature and length of lag between the application of the measures of monetary policy and the effects on macroeconomic aggregates. While the monetary strategy points to several possible reasons for the lag, there is no general agreement on the length of the lag. The study of the phenomenon of lag imposes two questions: what does the lag of the application of monetary processes and policy imply and why are the asset holders not capable of immediately adjusting their portfolios at the time of disbalance? There are two categories of lag known in economic literature: the inside lag (which encompasses the recognition of the problem and the implementation of measures) and the outside lag (which encompasses the reaction of macroeconomic aggregates to the applied measures of monetary policy). The paper descriptively notes the different identifications of time lag and provides schematic representations of the effects of the observed phenomenon.

Date: 2011
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DOI: 10.1080/1331677X.2011.11517463

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