Person: Gete, Pedro
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Pedro
Last Name
Gete
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IE University
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IE Business School
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Finance
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13 results
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Publication What drives housing dynamics in China? A sign restrictions VAR approach(Elsevier, 2015-12) Gete, Pedro; Yang Bian, Timothy; https://ror.org/02jjdwm75We study housing dynamics in China using vector autoregressions identified with theory-consistent sign restrictions. We study seven potential drivers: (1) population increases; (2) a relaxation of credit standards, for example, due to the shadow banking system; (3) increasing preferences towards housing, for example, due to a housing bubble, or to housing being a status asset in the marriage market; (4) an increase in the savings rate; (5) expected productivity progress; (6) changes in land supply; and (7) tax policy, a proxy for policy stimulus. Our results show that, even if all shocks play relevant roles, productivity, savings glut, and policy stimulus have been the dominant drivers. When the sample is closer to 2014, housing preferences and credit shocks increase their importance to explain house prices and volume, while population shocks explain a larger share of the dynamics of residential investment. The results show some differences if we use house price indices constructed by the government or by private sources. The official indices show smaller increases in house prices and assign a smaller role to credit and preference shocks.Publication A Quantitative Model of International Lending of Last Resort(Elsevier, 2020-03) Gete, Pedro; Melkadze, Givi; Uribe, Martin; https://ror.org/02jjdwm75We analyze banking crises and lending of last resort (LOLR) in a quantitative model of financial frictions with bank defaults. LOLR policies generate a tradeoff between financial fragility (due to more highly leveraged banks) and milder crises since the policies are effective once in a crisis. In the calibrated model, the crisis mitigation effect dominates the moral hazard problem and the economy is better off having access to a lender of last resort. We characterize the conditions under which pools of small economies can be sustainable LOLRs. In addition, we assess the ability of China - a country with ample reserves - to be a sustainable international LOLR.Publication Compensation contracts and fire sales(Elsevier, 2015-06) Gete, Pedro; Gómez, Juan Pedro; Ministerio de EconomÃa y Competitividad; https://ror.org/02jjdwm75This paper analyzes the impact of remuneration practices on banks’ risk-taking in a model with fire sales externalities. When these externalities are not internalized by a bank's shareholders and executives, borrowing and fire sales are higher than the socially optimal level. Our analysis shows that plain-vanilla equity fails to internalize fire sales externalities. Deferred equity and long-term bonuses unrelated to short-term profits can restore social efficiency. Bail-in bonds can achieve efficiency at a smaller cost since they allow for state-contingent payments. It is not the level but the composition of variable compensation that determines the inefficiency. Excessive regulation may lead to suboptimal levels of risk-taking. Government guarantees reinforce the fire sales externalities and the need for regulation.Publication Credit Stimulus, Executive Ownership, and Firm Leverage(INFORMS, 2021-12-14) Gete, Pedro; Chakraborti, Rajdeep; Dahiya, Sandeep; Ge, Lei; Ministerio de Ciencia, Innovación y Universidades; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75We show that executive ownership is a significant driver of the demand for credit following credit expansion policies. Our focus on credit demand is in contrast to most studies that have focused on credit supply factors such as bank capital. Our identification exploits the large and unexpected Chinese credit expansion in 2008. This setting offers a unique advantage as in 2008 the Chinese government had almost complete control over the banking sector and it directed the banks to increase credit supply. Thus, in this setting, demand, rather than supply, largely drives the observed changes in firms’ borrowing. We provide extensive robustness tests to validate our results.Publication A model of managerial compensation, firm leverage and credit stimulus(Elsevier, 2024-06) Gete, Pedro; Chakraborti, Rajdeep; Dahiya, Sandeep; Ge, Lei; Ministerio de Ciencia, Innovación y Universidades; Agencia Estatal de Investigación; https://ror.org/02jjdwm75We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for endogenous compensation and leverage can explain the conflicting findings of the empirical literature. We uncover a new channel of complementarity between effort and leverage that induces a correlation sign opposite to what current theoretical models predict. Second, we study the dynamics of leverage and compensation design after a credit stimulus. We derive a set of new empirical predictions. For outward-shifts in credit supply, variable compensation is increasing in leverage growth. Moreover, variable compensation increases after the credit stimulus, especially for firms with low idiosyncratic risk.Publication Distributional Implications of Government Guarantees in Mortgage Markets(Oxford University Press, 2017-07-20) Gete, Pedro; Zecchetto, Franco; Ministerio de EconomÃa y Competitividad; https://ror.org/02jjdwm75We analyze the removal of the credit-risk guarantees provided by the government-sponsored enterprises (GSEs) in a model with agents heterogeneous in income and house price risk. We find that wealth inequality increases, driven by higher mortgage spreads and housing rents. Housing holdings become more concentrated. Foreclosures fall. The removal benefits high-income households, while hurting low- and mid-income households (renters and highly leveraged mortgagors with conforming loans). GSE reform requires compensating transfers, sufficiently high elasticity of rental supply, or linking GSE reform with the elimination of the mortgage interest deduction.Publication Mortgage Supply and Housing Rents(Oxford University Press, 2018-12) Gete, Pedro; Reher, Michael; Ministerio de EconomÃa y Competitividad; https://ror.org/02jjdwm75We show that a contraction of mortgage supply after the Great Recession has increased housing rents. Our empirical strategy exploits heterogeneity in MSAs’ exposure to regulatory shocks experienced by lenders over the 2010–2014 period. Tighter lending standards have increased demand for rental housing, leading to higher rents, depressed homeownership rates and an increase in rental supply. Absent the credit supply contraction, annual rent growth would have been 2.1 percentage points lower over 2010–2014 in MSAs in which lending standards rose from their 2008 levels. Received December 21, 2016; editorial decision October 24, 2017 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.Publication Expectations and the housing boom and bust. An open economy view(Elsevier, 2020-09) Gete, Pedro; Banco de España; CaixaBank; Ministerio de EconomÃa y Competitividad; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75I show that both before and after the Great Recession, housing dynamics strongly correlate with current account dynamics, both across and within countries. In a benchmark DSGE model of housing markets, housing price-to-rent ratios are counterfactual if the transmission channel from housing to the current account is only through the consumption effects from relaxed borrowing constraints. Utilizing a model with enough reallocation of labor between construction and tradable goods resolves the problem. In this model, using survey data on housing price expectations generates dynamics of housing variables and the current account consistent with the data. However, interest rate dynamics are counterfactual.Publication Mortgage Securitization and Shadow Bank Lending(Oxford University Press, 2021-05) Gete, Pedro; Reher, Michael; Goldstein, Itay; https://ror.org/02jjdwm75We show how securitization affects the size of the nonbank lending sector through a novel price-based channel. We identify the channel using a regulatory spillover shock to the cross-section of mortgage-backed security prices: the U.S. liquidity coverage ratio. The shock increases secondary market prices for FHA-insured loans by granting them favorable regulatory status once securitized. Higher prices lower nonbanks’ funding costs, prompting them to loosen lending standards and originate more FHA-insured loans. This channel accounts for 22% of nonbanks’ growth in overall mortgage market share over 2013–2015. While the shock creates risks for financial stability, homeownership also increases.Publication Dealing with Overleverage: Restricting Leverage vs. Restricting Variable Compensation(SSRN, 2018-01-25) Gete, Pedro; Gómez, Juan Pedro; https://ror.org/02jjdwm75We study policies that regulate executive compensation in a model that jointly determines executives' effort, compensation and firm leverage. The market failure that justifies regulation is that executives are optimistic about asset prices in states of distress. We show that shareholders propose compensation packages that lead to socially excessive leverage. Say-on-pay regulation does not reduce the incentives for leverage. Regulating the structure of compensation (but not its level) with a cap on the ratio of variable-to-fixed pay delivers the right leverage. However, it is more efficient to directly regulate leverage because restricting the variable compensation impacts managerial effort more than if shareholders are free to design compensation subject to a leverage constraint.