Three models for term structure, classical liquidity preference and preferred habitat and the general form of the expectations formation mechanism are studied in the comprehensive format of a state space model. On the assumption of a finite horizon, the advantages of the state space approach are pointed out with reference to parameter estimation and forecasting. One-period current rates are then viewed as policy instruments to control the term structure. A policy based on stochastic optimal control is analysed. Finally, the theoretical implications of the state space approach are discussed with reference to the implicit information market underlying the term structure.