Response Lag

Definition of 'Response Lag'


The time lag between when a corrective action is taken in the economy and when any changes coming from the action are noticed or felt. Corrective actions may be taken by the government directly, or more commonly by central banks or other mandated monetary authorities.

Also known as "impact lag", or the time it takes for the impact of corrective action to be felt by the economy.

Investopedia explains 'Response Lag'


If the economy is deemed to be running too hot or too cold, or a sudden shock occurs, there are three time lags to consider before the economy can properly adjust. The response lag occurs after the recognition lag (how long before the shock or shift is noticed) and the implementation lag (how long before corrective action is first taken).

When the Federal Reserve changes benchmark rates like the federal funds rate to shift the economy, it can take up to six months before the change integrates into the economy. Economists are well aware of the existence of multiple time lags in the modern economy, and adjust for this in their forecasts and calculations of future conditions.



comments powered by Disqus
Hot Definitions
  1. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  3. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  4. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  5. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  6. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
Trading Center