Hidden Markov Models, Markov Chains, Markov Switching, Markov Auto Regression, Maximum Likelihood.
rate y_t: y_t expressed as the sum of a mean and an error term (Image by Author) We are saying that at any time t, the observed unemployment rate y_t is the sum of the modeled mean μ_cap_t and the residual error ε_t. The modeled mean μ_cap_t is the regression model’s prediction of unemployment rate