We reexamine the expectations theory of the term structure focusing on the question how monetary policy actions indicated by changes in the very short rate affect long-term interest rates. Our main point is that the expectations hypothesis implies that very long rates should only react to...

A distinguishing feature of the ECB's monetary policy setup is the preannouncement of a minimum bid rate in its weekly repo auctions. However, whenever interest rates are expected to decline, the minimum bid rate is viewed as too high and banks refrain from bidding, severely impeding the ECB's...