##gs can cause problems, inside lags and outside lags. inside lags involve the time between the need for action and the action, outside lags the time between policy action and its impact on the economy. an inevitable component of the inside lag is simply the time it takes policymakers, whether on the monetary or fiscal side, to recognize shifts in economic indicators. policymakers can rely on forecasting models, but these can be sufficiently wide of the mark that policymakers often prefer to see real world data before they act. in most countries first reports on economic data come out about a month after the quarter or month for which the data are reported, but these first reports are subject to considerable short run noise, often revised substantially, and in fact are themselves often little better than forecasts. if there were a sharp but unexpected change in the pace of activity, policymakers would probably not have a good statistical idea of this change until a month or more after the fact. the other component of the inside lag is the time between recognition and action. for monetary policy this time period is usually relatively short. central bank monetary policy committees generally meet at two to six weeks ’ intervals throughout the year. normally these committees respond to changes in economic information at the first meeting after the fact, sometimes the second. if the change were to be extreme, most committees have the ability to make inter - meeting changes in policy. summing the two components, for monetary policy the inside lag is probably on the order of a quarter, less if the monetary authorities are prepared to act on the basis of forecasts. for fiscal policy, the time between recognition and action is long in parliamentary countries, seemingly interminable in the united states. in the u. s. if the need for action is recognized in the fall of the year, the president ’ s budget message can reflect that. but the budget message, which comes out in early february, lays the groundwork for congressional debate on the budget, which most of the time is not quite completed by the time the fiscal year starts in october. hence, at best this component of the inside lag for u. s. discretionary fiscal policy is about a year, already longer than the average recession, and the lag can be substantially longer than that if the relevant action is at all controversial. in parliamentary countries it is possible to act faster, but even in these countries there can be substantial procedural bottlenecks to altering a budget that has already

mr. greenspan ’ s remarks at the center for financial studies in frankfurt remarks by the chairman of the board of the us federal reserve system, mr. alan greenspan, at the center for financial studies in frankfurt - am - main, on 7 / 11 / 97. the remarkable progress that has been made by virtually all of the major industrial countries in achieving low rates of inflation in recent years has brought into sharper focus the issue of price measurement. as we move closer to price stability, the necessity of measuring prices accurately has become an especial challenge. biases of a few tenths in annual inflation rates do not matter when inflation is high. they do matter when, as now, a debate has emerged over whether our economies are moving toward price deflation. in today ’ s advanced economies, allocative decisions are primarily made not by governments but by markets, and the central guide to the efficient allocation of resources in a market economy is prices. prices are the signals through which tastes and technology affect the decisions of consumers and producers, directing resources toward their highest valued use. of course, this signaling process would work with or without government statistical agencies that measure individual and aggregate price levels, and in this sense, price measurement probably is not fundamental for the overall efficiency of the market economy. indeed, vibrant market economies existed long before government agencies were established to measure prices. nonetheless, in a modern monetary economy, accurate price measurement is of considerable importance, increasingly so for central banks whose mandate is to maintain financial stability. accurate price measures are necessary for understanding economic developments, not only involving inflation but also involving real output and productivity. if the general price level is estimated to be rising more rapidly than is in fact the case, then we are simultaneously understating growth in real output and productivity. real incomes and living standards are rising faster than our published data suggest. under these circumstances, policymakers must be cognizant of the shortcomings of our published price indexes to avoid misguided actions that will provoke unintended consequences. clearly, central bankers need to be conscious of the problems of price measurement as we gauge policies designed to promote price stability and maximum sustainable economic growth. moreover, many economic transactions, both private and public, are explicitly tied to movements in some published price index, most commonly a consumer price index ; and some transactions that are not explicitly tied to a published price index may nevertheless take such an index into account less formally. if the price index is not accurately