Lessons for policy

The first conceptual hurdle to overcome is to define what is meant by speculation and financialisation. A typical approach to answer this question is to define destabilising speculation as whatever is left over after fundamental forces have been accounted for (Lombardi and Van Robays 2011).

But speculation is the economic response mechanism to a large variety of underlying uncertain changes, some of which could be down to current and/or anticipated demand and supply prospects and some of which could be down to financial layer shifts. Anyone who decides between buying a small car or a petrol guzzler is effectively speculating in oil, and it is surely not a concern that they have a view on the future price of energy. Similarly, the accumulation of physical inventory in anticipation of future changes (providing the market is not being squeezed) is a market solution to uncertainty.

Thus, as Parsons (2009) explains, we have to be humble about our ability to capture destabilising speculation as what is left over, using the patchy data that we have on oil fundamentals. Similarly, it should also be hard to try and pick the destabilising rise in financial participation from that which is a healthy consequence of secular trends in financial globalisation and financial innovation. Another route is to ask if more underlying changes, such the greater appetites or resources of purely financial investors, can be damaging for final consumers. This is a complementary strategy to an empirical approach. As the

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