On the link between the US economic policy uncertainty and exchange rates

Employing dynamic conditional correlation GARCH (DCC-GARCH) model, this paper analyzes spillover effects of the US economic policy uncertainty shock on real effective exchange rates with the data from January 2000 to December 2014. We find that the correlations between the US EPU and the returns of the high-yielding currencies are consistently negative throughout the sample period, while the correlation between the US EPU and the returns of Japanese yen is consistently positive. Moreover, we find that the correlations tend to be intensified during two post-2000 recession episodes. (C) 2016 Elsevier B.V. All rights reserved.