The Asymmetric Effects of Economic Policy Uncertainty Changes on Unemployment in the G7 Countries

This study analyzes the asymmetric effects of economic policy uncertainty (EPU) on unemployment rates in the G7 countries using nonlinear autoregressive distributed lag (NARDL) and quantile nonlinear autoregressive distributed lag (QNARDL) models. The NARDL model reveals that positive EPU shocks (increased uncertainty) have stronger and more prolonged impacts on unemployment in Canada and the UK, while negative shocks (reduced uncertainty) have stronger effects in France, Germany, Italy, Japan, and the US. The QNARDL model highlights that these effects vary across unemployment levels, with higher-unemployment regimes being more sensitive to EPU changes. These findings demonstrate country-specific labor market responses and emphasize the need for customized policy interventions during periods of heightened uncertainty.