Hidden Markov Models, Markov Chains, Markov Switching, Markov Auto Regression, Maximum Likelihood.
the above equation, y_t is the observed value, μ_cap_t_j is the predicted mean when the Markov process is in state j, and ε_t is the residual error of regression. In our unemployment rate data set, we have assumed that s_t toggles between two regimes 1 and 2, which gives us the following