Furthermore, the process of setting wages is to some extent backward-looking in a number of euro area countries, reflecting formal and informal indexation mechanisms.2 Additionally, the timing of wage negotiations plays a role in postponing the point in time when growing confidence that inflation is approaching the ECB’s intended medium-term level starts to become more visible in aggregate wage figures.
According to the widely accepted definition of the BIS, “A liquid market is a market where participants can rapidly execute large-volume transactions with a small impact on prices.”3 I believe that a robust, fair, open, and transparent market, where diverse types of participants with diverse business models can confidently transact will indeed support market liquidity, which in turn enhances the functioning of the foreign exchange market.