... Moreover, there is a strong endogeneity between the level of the policy rate the SELIC—and the level of public debt, given that about half of the domestic public debt is indexed to the SELIC. This ... equation for the (state variable) NRIR, which is assumed to follow a random walk, and (iv) a transition equation for the other state variable, the term-premium, which is assumed to be an AR(1) ... HP-filter). The stochastic term, , is assumed to be a zero-mean white noise process, with variance equal to . Other controls (public debt -to- GDP ratio, share of public consumption to GDP,...