PhD Thesis Defense Presentation: Borel Ahonon
Borel Ahonon, a doctoral student at 91黑料网 in the Finance area will be presenting his thesis defense entitled:
Three Essays on Macrofinance and Sovereign Credit Risk
Thursday, May 21, 2026, at 9:00 AM
(The defense will be conducted online)
Student Committee Co-chairs: Prof. Patrick Augustin and Prof. Guillaume Roussellet
Please note that the Defence will be conducted online. Only the student and their committee members may participate in the presentation.
Abstract
This thesis studies how investors interpret macroeconomic information and how these interpretations shape the pricing of Treasury bonds, sovereign credit risk, and exchange rates.
The first essay proposes a macro-finance model in which inflation, growth, and the policy rate are driven by unobservable long-run trends and transitory cycles that investors must infer from aggregate data. The subjective estimates of these trends, and the uncertainty surrounding them, are priced into the Treasury yield curve in a tractable way through both interest rate expectations and bond risk premia. Empirical estimates reveal a smooth upward trend in the long-run real interest rate (r-star) until the 1980s and large investor uncertainty, with confidence bands as wide as 3.4 percentage points, contrasting with the volatile rate implied by perfect-information models.
In the second essay, I examine the effects of domestic and U.S. inflation on sovereign credit risk. Using monthly data for twenty-three advanced economies between 2001 and 2022, I document that domestic inflation raises sovereign CDS spreads, whereas U.S. inflation lowers them. These opposite effects operate mainly through investors鈥� expectations of sovereign default rather than risk premia. The negative association between U.S. inflation and sovereign credit risk reflects a demand-driven channel, where price increases arise during periods of stronger economic activity and lower default probabilities. In contrast, domestic inflation signals tighter monetary policy and weaker fiscal prospects, heightening concerns about debt sustainability.
The last essay explores the relationship between sovereign credit risk and exchange rates and how quanto spreads arise. Quanto spreads correspond to the difference between credit default swap (CDS) spreads on the same entity but denominated in different currencies. I empirically document a negative contemporaneous relationship between sovereign credit risk and exchange rates and show that quanto CDS spreads positively predict exchange rate movements. I then propose an international macro-finance model in which the level, volatility, and term structure of quanto spreads are driven by rare disaster risk with time-varying probability and its contagion effects. These features depend on the correlation of cross-country expected consumption volatilities and generate a trade-off: an upward term structure of quanto spreads and a strong negative contemporaneous relationship lead to negative exchange rate predictability and excessively high exchange rate volatility.
