The term structure of interest rates (TS) is an important analytical device in monetary economics. The central bank controls short-term rates, but decisions to invest rather depend on the long-term rate. Thus the TS appears central to the transmission process of monetary policy. The expectations theory of the TS states that the slope of the yield curve, the empirical approximation of the TS, “has something to do with expectations about future interest rates” (Shiller 1990, p. 644). If this were true, the TS could be a reliable indicator for the credibility and the effect of monetary policy decisions (cf. Gebauer 1991). Unfortunately the evidence for the expectations theory is, at best, mixed. In the following sections I will analyse the information contained in the ‘official’ German TS, published monthly by the Deutsche Bundesbank (Statistische Beihefte, Reihe 2, Wertpapierstatistik, table 8d), with respect to the expectations theory.
