Where actors in the economy quickly come to believe that the authorities are determined to slow a speeding economy, it may well be that the lags are quite short. The contrast here is between 1988 (long lags) and 1994 (short). The other problem is the classic one of separately identifying the policy reaction function and the effect of policy on the economy.
Relatively early in the upswing, policy is tightened, but there is no discernible response because the upswing still has a good deal of 5  BIS Review 80/1997  -5-  Perhaps a more telling argument is that it is simply not sensible -- or even possible -- to ignore the cycle, unless a suitable “neutral” operating rule can be found for setting monetary policy.