Hidden Markov Models, Markov Chains, Markov Switching, Markov Auto Regression, Maximum Likelihood.
switches between two regimes 1 and 2. The important question is: why are we calling s_t a ‘hidden’ random variable? We call s_t hidden because we do not know exactly when it changes its regime. If we knew which regime was in effect at each time step, we would have simply made s_t a regression