Asymmetric Causality between Economic Policy Uncertainty and Macroeconomic Performance in Nigeria: Evidence from a Nonlinear Causality Framework

The study examines whether causal relationships between economic policy uncertainty (EPU) and macroeconomic performance in Nigeria differ across positive and negative shocks. Monthly data are analysed using the Toda–Yamamoto causality test, Hatemi-J asymmetric causality test with bootstrap inference, Zivot–Andrews structural-break test, and Diks–Panchenko nonlinear causality test. The descriptive evidence indicates non-normal and asymmetric distributions, while the structural-break analysis identifies an endogenous break in EPU in February 2020. The asymmetric causality results show a significant unidirectional effect from negative GDP growth shocks to positive EPU shocks (Wald statistic = 47.210; bootstrap p-value = 0.002). The corresponding reverse asymmetric channel is not significant (Wald statistic = 4.081; bootstrap p-value = 0.244). The Toda–Yamamoto results similarly indicate unidirectional causality from GDP growth to EPU (Wald statistic = 25.033; p < 0.001), whereas causality from EPU to GDP growth is statistically insignificant (Wald statistic = 4.386; p = 0.356). No significant causal relationships at the 5% level are found between EPU and the exchange rate, inflation, interest rate, or unemployment rate. The Diks–Panchenko test also provides no evidence of unconditional nonlinear causality. Overall, the findings indicate that policy uncertainty responds more strongly to adverse growth conditions than it predicts broader macroeconomic performance in Nigeria, highlighting the importance of policy credibility, consistency, and coordination during economic downturns.