Estimation of the variance of the random disturbance term, o We know o=var(e) and it is unknown Thus, var(b)=o3 i 2 var X and so on are also unknown. to estimate them we have to first evaluate o. It is not difficult to show that a2_o2 n-2) is an unbiased estimator for oEstimation of the variance of the random disturbance term, : We know and it is unknown. Thus, and so on are also unknown. To estimate them, we have to first evaluate . It is not difficult to show that is an unbiased estimator for , 2  2 var( )   = i 2 2 2 1 0 2 2 ˆ ˆ var( ) , var( ) i i i X b b x n x  = =     2  2 2 ˆ ( 2) i  = − e n2 