The monetary dimension of arbitrage. A brief note

Andrea Mantovi ()

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Financial frictions give rise to the value of money. According to DeAngelo and Stulz (2015), such a principle lies at the foundations of banking. It is the aim of this short note to deepen the reach of such a principle with respect to the role of arbitrageurs of interacting with financial frictions. The methodological relevance of such a perspective for the current macroeconomic debate is thoroughly discussed, building on the stylization of “friction setting”. Recent advances in the analysis of market-making and limits of arbitrage provide concrete empirical backing for our approach, which is meant to shed light on the analogy between the macro-role of money and the nature of arbitrage. Potential implications for the theoretical analysis of shadow banking are briefly sketched.

Keywords: Macro Finance; Financial Frictions; Liquidity Transformation; Arbitrage (search for similar items in EconPapers)
JEL-codes: E32 E44 G23 (search for similar items in EconPapers)
Date: 2018-06, Revised 2018-10
New Economics Papers: this item is included in nep-mac and nep-mon
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