leads and lags

leads and lags

  1. the timing differences that exist between peaks and troughs of LEADING INDICATORS and LAGGING INDICATORS and the overall BUSINESS CYCLE. Thus, in a seven-year business cycle, if the peak of the cycle occurred in the middle year (year four), then a leading indicator, such as starts on new houses, may have peaked in year three. This indicator leads the business cycle by one year. Similarly, lagged variables will have peaks or troughs after the business cycle.
  2. the time variation from standard payment practice when settling foreign trade debts. The variation from standard practice results from the expectations of traders, which may influence the profitability of settling the debt early (lead) or late (lag). The commonest factor that contributes to this practice is expectations of a change in the EXCHANGE RATE. Traders in an importing country have an incentive to postpone settlement to manufacturers in the exporting nation if there is an expectation of a foreseeable devaluation in the rate of exchange of the exporting country's currency. Similarly, if a revaluation (that is, an increase in exchange rate) is in prospect, traders in the importing (debtor) nation can be expected to settle early. See also J-CURVE, LAGGED RELATIONSHIP, EXCHANGE RATE EXPOSURE.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
This paper contributes to our understanding of the informational efficiency of markets by demonstrating that leads and lags in price discovery can differ depending upon the type of news.