The Impact of Economic Policy Uncertainty on China’s Business and Consumer Confidence: A Quantile-Based Analysis

In an era of economic volatility, consumer and business confidence are in the spotlight in shaping market outcomes. To this end, this study examines the impact of economic policy uncertainty (EPU) on business confidence (BC) and consumer confidence (CC) in China over a period spanning from 2000M1 to 2023M4. This study employs quantile-on-quantile regression and quantile causality approaches for empirical estimations. These approaches can illustrate the overall dependence structure among EPU, BC, and CC, enabling us to identify the underlying asymmetries. The empirical evidence underscores the negative association between EPU and BC in the low, medium, and high quantiles. Regarding the association between EPU and CC, the lower quantiles of EPU negatively influence the lower to medium quantiles of CC. In contrast, the lower quantiles of EPU have a positive association with the high quantiles of CC. In conclusion, the impact of EPU on BC is uniformly negative across the entire distribution, whereas the impact of EPU on CC exhibits asymmetry in China. The study recommends that policymakers should ensure transparent and proactive economic communication to propel business and consumer confidence in China.