Estimating Cointegrating Relations from a Cross Section

This paper specifies a regression model describing cointegrating relations between variables at the individual level. The models considered allow for homogeneous cointegration and heterogeneous cointegration. In both cases correlation between the regressors and the regression error can occur through aggregate shocks that are common to all cross‐section units so the condition about the regressors being independent of the regression error is not imposed. It is shown that the estimator obtained by a cross‐section regression performed at any point in time is a consistent estimator of the cointegrating parameters in the homogeneous case and of the cointegrating parameter means in the heterogeneous case. In both cases the limiting distribution of the cross‐section estimator is normal.