Why policymakers need to take note of high-frequency finance | vox – Research-based policy analysis and commentary from leading economists
Today we are all grappling with the global financial crisis and have to make hard decisions. In living memory, we have not seen a crisis of a similar scale, so policymakers are in a vacuum and do not have any comparable historical precedents to validate their policy decisions.
If the global economy had been in existence for 100,000 years, this would be a different matter. We would have had many crises of a similar scale, and we could use these previous events as a benchmark to evaluate the current crisis. The modern economy with financial markets linked together through high speed communication networks trading trillions of dollars on a daily basis is a new phenomenon that did not exist even 20 years ago. People refer to the events of 1929 and subsequent years, but while these events can be used as one possible point of reference, they are not meaningful in the statistical sense. On a macro level, we can make observations but no inferences because we do not have the historical data. There is a void that researchers and policymakers need to acknowledge.