Hi!

I am working on a project with a short panel data structure and have discovered non-stationarity in two out of four independent variables. However, as the dependent variable is measured with a lag, it appears to be stationary. I am therefore considering testing for cointegration but I am not sure if I need to include a first-difference in all of my variables (or only in the non-stationarity variables?) prior to testing for cointegration or if this only should be done if the variables appear to be non-cointegrated.

If the variables are cointegrated, should a first-differenced model be used or can I use the original, level, version?

Thank you in advance!