Financial crises and estimation bias in international bond markets

This paper analyses the impact of estimation bias on various international bond markets during recent financial crises, using a unique empirical design. We estimate the Kalman filter over the period 2004–2014 using weekly data from the US and its main trading partners and construct measures of model forecasts, term premia, and risk premia in the presence of estimation bias, and in its absence. We find that the impact of estimation bias was the strongest for all sampled countries during the Global Financial Crisis of 2007–2010, and the ongoing eurozone sovereign debt crisis.