This paper develops and empirically implements a two-factor model of the term structure of interest rates. In addition to the short rate, the additional factor is the mean level of the interest rate. Closed-form solutions for bond prices where the mean follows either a jump process or a diffusion process are provided. The model has sufficiently general theoretical foundations to enable estimation of the time path of the mean interest rate level without specifying a functional form for the stochastic behavior of the mean level. This constitutes a simple methodology which exploits the mathematical structure of the partial differential equations defining bond prices. The pricing performance of the model relative to other models is assessed. The model is also able to capture features of the long end of the term structure.