Unfortunately, I am not very familiar with panel data methods (yet) but it seems important to check if my data display stationarity (aka time trends). Assuming that my regression function looks like this:
$π_{ππ‘} = \alpha + X_{ππ‘} + W_{ππ‘} + \varepsilon_{ππ‘}$
where:
$i$ = country,
$t =$ year,
$Y =$ dependent variable,
$X =$ independent variable of interest,
$W =$ control variables,
$\varepsilon =$ error term
How should I check stationary? Only for $Y$? Or also for each individual regressor? By using the global mean of $Y$ for each year (i.e. the annual average $Y$ over all countries in the data set to see if there is a global trend) or should I been looking for a countrywide time trend by plotting the time evolution of $Y$ for each country individually?
I really have no idea what the correct approach is.
