In this paper we study the causal behavior of Rayleigh fading wireless channel and a single queue system buffer using the finite state Markov chain (FSMC) and the finite buffer fluid flow model. In the process, we propose a state partitioning scheme for capturing the wireless channel realities based on the combined effect of level crossing rate (LCR), average fade duration (AFD) and the average value of the signal SNR observed at the output of the matched filter or correlation demodulator. Relevant system parameters captured using such a scheme is linked with the fluid flow traffic model to create a modulated Markov process (MMP) that is used to calculate the packet loss rate and effective bandwidth of the system.