if I have unit root problem in both, dependent and independent variables, which technique is recommended to use to get consistent estimation? (T is bigger than N). can I employ dynamic panel data models or first differences? and which of them is better? also if some independent variables are stationary, do I leave they as level or use first differences?
The choice of methodology depends on several criteria. Please, refer the attachment that clearly shows the which model you have to adopt for panel data based on those criteria and your situation.
Good Luck.
Dilesha Rathnayake I want to estimate commercial banks profitability. dependent variable is ROA, independents are capital ratio, non-performing loan ratio, log(assets), non-interest expenses, interest income, liquidity. I have T=62(monthly) N=13 panel. I can't upload data, according to my office's rule.
In your panel data N25, So I would like to suggest you to use Pooled OLS, FE or RE (based on the huasmen test). And also you can apply cointegration regression models such as FMOLS and Dynamic OLS. If some independent variables are stationary at level, you should use the first differences of those. (You don't need to uplaod data here.)
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