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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
Since the graphs of CUSUM and CUSUMSQ tests for price rises are not crossing
the critical line, it is clear and obvious that our model of inflation is stable.
JUNE 2011
VOL 3, NO 2
Granger causality is a test used to check real causes of variables. It is used to describe the
track of relation. Null hypothesis is rejected when probability is less than 0.10. There is
unidirectional causality for inflation with GDP, broad money and call money rate. Inflation,
GDP, broad money and call money rate are causing each other but government bond yield
and inflation are not causing each other. The results are depicted in table 9.
TABLE 9
Granger Causality
Pairwise Granger Causality Tests
Date: 05/19/11 Time: 13:49
Sample: 1961 2010
Lags: 2
________________________________________________________________________
H 0 Obs F-Stats Probability
GDP doesn’t Granger Cause INF 46 0.08 0.92
INF doesn’t Granger Cause GDP 6.32 0.00
LM doesn’t Granger Cause INF 46 1.59 0.21
INF doesn’t Granger Cause LM 5.44 0.00
CMR doesn’t Granger Cause INF 46 0.31 0.73
INF doesn’t Granger Cause CMR 10.3 0.00
GBY doesn’t Granger Cause INF 46 0.15 0.86
INF doesn’t Granger Cause GBY 0.93 0.40
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