then yi and the variance of the disturbance would be ∑=E(mam2)=E + Observations on all the cross-section can be rewritten as 6+ yN or in more compact form + where y and n are NT×1, X iS NT×k,Bisk×1and 0 0∑0 0 Q=Eln IN⑧习then yi = X0 iβ + ηi , i = 1, 2, ..., N, and the variance of the disturbance would be Σ = E(ηiη 0 i ) = E         εi1 + ui εi2 + ui . . . εiT + ui         εi1 + ui εi2 + ui . . εiT + ui =         σ 2 ε + σ 2 u σ 2 u σ 2 u . . . σ 2 u σ 2 u σ 2 ε + σ 2 u σ 2 u . . . σ 2 u . . . . . . σ 2 u σ 2 u σ 2 u . . . σ 2 ε + σ 2 u         = σ 2 ε IT + σ 2 u iTi 0 T. Observations on all the cross-section can be rewritten as           y1 y2 . . . . yN           =           X1 X2 . . . . XN           β +           η1 η2 . . . . ηN           , or in more compact form y = Xβ + η, where y and η are NT × 1, X is NT × k, β is k × 1 and Ω = E(ηη 0 ) =           Σ 0 . . . 0 0 Σ 0 . . 0 . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . 0 Σ           = IN ⊗ Σ. 11