Abstract:
The present paper proposes certain statistical tests, both
conceptually simple and computationally easy, for analysing state-specific
prima facie probabilistic causality and error correction mechanism in
the context of a Markov chain of time series data arranged in a
contingency table of present versus previous states. It thus shows that
error correction necessarily follows causality (that is temporal
dependence) or vice versa, suggesting apparently that the two represent
the same aspect! The result is applied to an analysis of inflation in India
during the last three decades separately and also together based on the
monthly general price level (WPI - all commodities) and 23 constituent
groups/items, as well as on the three consumer price index (CPI) numbers.
