Objective: To find out of there if the number of transactions carried out through

cards (trans) (Credit cards + Debit cards) are dependent upon

1.
2.
3.
4.

Number
Number
Number
Number

of
of
of
of

Cards (cards)
ATM machines (atm)
POS (pos)
e-wallets (e_wallet)

Data description:
Source of Data: RBI data from dbie.rbi.org,in
Data span: April 2013 to July 2016
Data Frequency: Monthly
Model:
trans = c0 + c1*cards + c2*atm + c3*pos + c4*e_wallet
Here:
Dependant variable:
trans = number of transactions carried out through cards in millions
Independent variable:
cards = Number of Cards in millions
atm = Number of ATM machines
pos = Number of POS
e_wallet = Number of e-wallets
Regression on EVIEWS:

This result suggests that the model explains the dependent variable and there is
no autocorrelation.
However, there is chance of multi-collinearity as POS and E_wallet have PStatistic > . .5.
We check for pairwise correlation to remove the possible multicollinearity.
Common-sense would dictate that the e_wallet could be a redundant variable in
the above model.
Therefore we run
trans = c0 + c1*cards + c2*atm + c3*pos
to check if the removal of the variable resolves the probable multicollinearity
problem.
Regression on EVIEWS:

Here too, from DW stat we can infer that there is no autocorrelation, Prob(Fstatistic) suggests model explains the dependent variable. Prob(T-statistic) for
c1, c2 and c3 suggests that are all non-zero and thus there is no multicollinearity.
However there is 88.31% chance that c0 = 0. Therefore, we accept the null
hypothesis Ho0: c0=0

Correlogram of trans Series

The graph is gradually decaying, this suggests presence of trend or seasonality

behaviour. Therefore, we run unit root test to find weather the series is stationary
or non-stationary.
ADF Unit root test at Level-Trend and intercept

The result suggests that the Unit root hypothesis is satisfied and the series is
non-stationary
ADF Unit root test at First Difference-Intercept

This confirms that the unit root hypothesis is rejected at 5% confidence interval.
This means that the first difference series is stationary.
Therefore, to stationarise the series, we de-trend the series and check the
correlogram

Thus the series has SMA(12) trace, MA(1), MA(2), SAR(12) trace. Hence we run
regression corresponding to these traces.

Here we see that MA(2) and SMA(12) traces are insignificant. Therefore we run
regression without these traces to check the significance of the model and the
traces.

We see that the model as well as the trace are significant. Next we will forecast
trans.
Static in sample forecasting

Dynamic in sample forecasting

Testing for ARCH Effect and Heteroskedasticity tests

Residual does not seem to have a pattern and volatility, this is understandable as
the data is long run, low frequency data with no behavioural aspects involved as
in Energy markets and Financial markets.
To confirm Homoskedasticity, we carry out Heteroskedasticity Test to check the
absence of ARCH Effect.

Prob. Chi-Square Statistic suggests the absence of Arch Effect at Lag 10

We check the same for LAG 5

No ARCH Effect at LAG 5, therefore, we conclude that there is no ARCH effect in

the sample

Unit Root Tests

ATM: Level

Unit root at Level

ATM: First Difference

No-Unit root at First Difference

Thus ATM is an I(1) Series
Cards: Level

Unit root at Level

Cards: First Difference

No-Unit root at First Difference

Thus CARDS is an I(1) Series
POS:Level

Unit Root at Level

POS: First Difference

No- Unit root at First Difference

Thus POS is an I(1) series
We had earlier confirmed that TRANS is an I(1) series
Now, that we have confirmed that all the series are I(1) in nature, there is a
possibility of Co-Integration
Hence, we try to find out lag length of Vector Auto Regression

Since most of Lag length criteria suggest a lag length of 4, we select a lag length
of 4 for the VAR modelling
Now we carry out Johansen Juselius cointegration test to check the level of CoIntegration

The results suggest presence of 2 co-integratigrating equations. Now we carry

out Vetor Error Correction Model with 4 lags

Cointegrating Eq:

CointEq1

LOG(CARDS(-1))

1.000000

LOG(ATM(-1))

1.161452
(0.25215)
[ 4.60626]

LOG(TRANS(-1))

-5.173707
(0.56460)
[-9.16345]

LOG(POS(-1))

2.412595
(0.36517)
[ 6.60686]

-19.74691

Error Correction:

D(LOG(CA...

D(LOG(ATM))

D(LOG(TRA...

D(LOG(POS))

CointEq1

0.059247
(0.02870)
[ 2.06437]

0.020887
(0.01809)
[ 1.15433]

0.151371
(0.06228)
[ 2.43060]

-0.166651
(0.05156)
[-3.23217]

D(LOG(CARDS(-1)))

0.466692
(0.20573)
[ 2.26844]

-0.080938
(0.12971)
[-0.62398]

-0.958577
(0.44643)
[-2.14720]

-0.076435
(0.36960)
[-0.20680]

D(LOG(CARDS(-2)))

-0.014756
(0.22540)
[-0.06546]

-0.100239
(0.14211)
[-0.70535]

-0.031156
(0.48911)
[-0.06370]

0.518964
(0.40494)
[ 1.28158]

D(LOG(CARDS(-3)))

-0.348017
(0.21640)
[-1.60824]

-0.217200
(0.13644)
[-1.59196]

-0.417397
(0.46957)
[-0.88889]

0.173166
(0.38876)
[ 0.44543]

D(LOG(CARDS(-4)))

-0.126908
(0.22294)
[-0.56923]

0.135896
(0.14056)
[ 0.96679]

0.269099
(0.48378)
[ 0.55624]

0.564022
(0.40053)
[ 1.40820]

D(LOG(ATM(-1)))

-0.656116
(0.30535)
[-2.14873]

0.565040
(0.19252)
[ 2.93496]

0.436204
(0.66260)
[ 0.65832]

1.167061
(0.54857)
[ 2.12745]

D(LOG(ATM(-2)))

0.097861
(0.30832)
[ 0.31740]

0.103632
(0.19439)
[ 0.53311]

-0.129682
(0.66904)
[-0.19383]

0.168668
(0.55390)
[ 0.30451]

D(LOG(ATM(-3)))

0.053208
(0.28926)
[ 0.18395]

0.259954
(0.18237)
[ 1.42540]

-2.535654
(0.62767)
[-4.03976]

0.434872
(0.51966)
[ 0.83684]

D(LOG(ATM(-4)))

-0.354598
(0.31410)
[-1.12893]

-0.365261
(0.19804)
[-1.84441]

0.768525
(0.68159)
[ 1.12755]

0.170846
(0.56429)
[ 0.30276]

D(LOG(TRANS(-1)))

0.148335
(0.10913)
[ 1.35920]

-0.079820
(0.06881)
[-1.16004]

-0.376184
(0.23682)
[-1.58850]

-0.596966
(0.19606)
[-3.04477]

D(LOG(TRANS(-2)))

-0.085728
(0.08649)
[-0.99114]

-0.086894
(0.05453)
[-1.59340]

-0.189204
(0.18769)
[-1.00807]

-0.374050
(0.15539)
[-2.40718]

D(LOG(TRANS(-3)))

0.027536
(0.07994)
[ 0.34444]

-0.039018
(0.05040)
[-0.77411]

0.026513
(0.17347)
[ 0.15284]

-0.158597
(0.14362)
[-1.10427]

D(LOG(TRANS(-4)))

0.089047
(0.06601)
[ 1.34901]

-0.016193
(0.04162)
[-0.38909]

-0.292238
(0.14324)
[-2.04023]

-0.057007
(0.11859)
[-0.48071]

D(LOG(POS(-1)))

0.066415
(0.10364)
[ 0.64083]

-0.067666
(0.06534)
[-1.03555]

-0.426420
(0.22489)
[-1.89610]

-0.151465
(0.18619)
[-0.81349]

D(LOG(POS(-2)))

0.051032
(0.10482)
[ 0.48684]

-0.066726
(0.06609)
[-1.00964]

-0.087550
(0.22746)
[-0.38490]

0.152133
(0.18832)
[ 0.80786]

D(LOG(POS(-3)))

-0.179739
(0.09970)
[-1.80285]

0.006851
(0.06286)
[ 0.10899]

0.292249
(0.21634)
[ 1.35089]

0.128255
(0.17911)
[ 0.71608]

D(LOG(POS(-4)))

-0.064216
(0.09663)
[-0.66453]

0.075492
(0.06093)
[ 1.23906]

0.263188
(0.20969)
[ 1.25512]

0.235076
(0.17361)
[ 1.35408]

0.031196
(0.01253)
[ 2.48903]

0.015025
(0.00790)
[ 1.90141]

0.067168
(0.02720)
[ 2.46970]

-0.026282
(0.02252)
[-1.16722]

The results suggest that there is long run causality (thus cointegration) among
these 4 time series.
Number
Number
Number
Number
Number

of
of
of
of
of

ATMs influence Number of Cards outstanding in long term

Cards Influence Number of Transactions
ATMs Influence Number of Transactions
of ATMs Influence Number of POS
Transactions Influence Number of POS

Now that long run causality is established, we also explore the presence and
direction of short run causality

VAR Granger Causality/Block Exogeneity Wald Tests

Date: 12/01/16 Time: 13:57
Sam ple: 2012M04 2016M10
Included observations: 53

Dependent variable: LOG(TRANS)

Excluded

Chi-sq

df

Prob.

LOG(CARDS)
LOG(POS)
LOG(ATM)

22.68173
8.780936
1.974579

2
2
2

0.0000
0.0124
0.3726

All

34.72374

0.0000

Dependent variable: LOG(CARDS)

Excluded

Chi-sq

df

Prob.

LOG(TRANS)
LOG(POS)
LOG(ATM)

2.435808
1.585455
8.230477

2
2
2

0.2958
0.4526
0.0163

All

9.830684

0.1320

Dependent variable: LOG(POS)

Excluded

Chi-sq

df

Prob.

LOG(TRANS)
LOG(CARDS)
LOG(ATM)

0.437432
6.039518
4.308044

2
2
2

0.8035
0.0488
0.1160

All

12.73857

0.0474

Dependent variable: LOG(ATM)

Excluded

Chi-sq

df

Prob.

LOG(TRANS)
LOG(CARDS)
LOG(POS)

21.38182
3.468158
13.03389

2
2
2

0.0000
0.1766
0.0015

All

32.06623

0.0000

In short run there are multiple causality that exists among

Influenced
Trans
Cards
Trans
Yes
Influencer
Cards
Yes
ATM
NO
No
POS
Yes
Yes
s

these variables
ATM
Yes
Yes
Yes

POS
No
Yes
Yes