Stationarity, Unit Roots and the Dickey-Fuller Test: An Applied Econometrics Learning Resource Using UK House Prices and EViews
Abstract
About This Resource This learning resource was originally developed in 2020 to support an Advanced Econometrics tutorial and econometrics laboratory session on stationarity, unit roots and the Dickey-Fuller test. It has subsequently been reviewed and revised for clarity, technical accuracy and wider educational use. The resource provides an applied introduction to stationarity and unit-root testing using monthly UK house-price data and EViews. It develops the intuition and mathematical foundations of stationary and non-stationary time series before introducing the Dickey-Fuller (DF) and Augmented Dickey-Fuller (ADF) tests. Particular attention is given to understanding the behaviour of autoregressive processes under different parameter values and to interpreting the results of formal unit-root tests. Although EViews is used for the empirical application, the underlying econometric methods can also be implemented using other statistical and econometric software packages. The empirical application demonstrates how the ADF test can be used to examine the time-series properties of UK average house prices in levels and after transformation. The analysis illustrates the relationship between unit roots, first differencing and the order of integration, while showing how these concepts are implemented and interpreted in EViews. The resource retains the practical and step-by-step approach of the original teaching material while providing additional explanation of the econometric concepts underlying the analysis. It is intended primarily for students studying econometrics, time-series analysis, finance, economics and related disciplines, as well as other learners seeking an applied introduction to stationarity and unit-root testing. This resource is provided for educational purposes and should be regarded as a teaching and learning resource.
