Definition
- Long and variable lags
- A change in interest rates takes a long and uncertain time to work through lending, spending and prices, with its main effects perhaps one to three years later.
Example
Can you think of an example of long and variable lags?
The Monetary Policy Committee raises Bank Rate to curb inflation, but by the time spending slows the economy is already cooling, and the rise deepens the downturn.
Test yourself
Can you name the three pitfalls that can blunt monetary policy?