I am doing a macroeconomic analysis involving BOP, investment ratio, GDP growth rates, and CPI inflation as dependent variables. My independent variables are other macro variables.
When I test for unit root, many of the variables display unit root.
But, by first differencing some of the IVs (for example the growth of exports) the interpretation of the affects on the DV become "growth of growth rates" and seems not right.
I know by adding a linear time trend variable as an IV into the regression, it removes the spurious regression with time. But, is this a replacement for first differencing? If not, what are the alternatives to first differencing my variables the interpretation is more coherent?