The Gunners have been linked with a move to sign the Spain Under-21 international over the past couple of weeks.
Ceballos impressed with his performances in the European Under-21 championship in Italy this summer.
The Spanish playmaker was thought to be attracting interest from Arsenal and Tottenham Hotspur.
Ceballos is willing to move on loan in order to gain first-team experience before returning to Real Madrid to challenge for a starting spot.
Arsenal have a limited transfer budget this summer so a loan move would suit the north London side.
Speaking at his media conference in Washington on Monday ahead of their friendly clash against Real Madrid, Emery said:
“We were speaking about the possibility to sign one player for line. We had different names. The club was working on that.
“Ceballos is a very good player. I know him from Betis at the beginning and Real Madrid.
“He played very well in the Under-21s, his national team won the competition. He is one eight and 10 player.”
Ceballos has netted five times in 56 games in all competitions since his move to Real Madrid from Real Betis in the 2017 summer transfer window.
The 22-year-old netted seven goals in over 100 appearances for Real Betis after breaking into the first-team during the 2013-14 season.
Arsenal finished in fifth place in the Premier League table last term to miss out on a place in the Champions League.
The Gunners suffered a chastening 4-1 loss to their bitter rivals Chelsea FC in the Europa League final.
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