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The monetary dimension of arbitrage. A brief note

Author

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  • Andrea Mantovi

    () (Dipartimento di Scienze Economiche e Aziendali, Università di Parma, Italy; 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.

Suggested Citation

  • Andrea Mantovi, 2018. "The monetary dimension of arbitrage. A brief note," Working Paper series 18-27, Rimini Centre for Economic Analysis, revised Oct 2018.
  • Handle: RePEc:rim:rimwps:18-27
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    References listed on IDEAS

    as
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    4. Adair Turner, 2015. "Between Debt and the Devil: Money, Credit, and Fixing Global Finance," Economics Books, Princeton University Press, edition 1, number 10546, December.
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    6. DeAngelo, Harry & Stulz, René M., 2015. "Liquid-claim production, risk management, and bank capital structure: Why high leverage is optimal for banks," Journal of Financial Economics, Elsevier, vol. 116(2), pages 219-236.
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    14. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, March.
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    More about this item

    Keywords

    Macro Finance; Financial Frictions; Liquidity Transformation; Arbitrage;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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