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

•This paper investigates the spillover effects of US economic policy uncertainty on real effective exchange rates.•High-yielding currencies are negatively correlated with the US economic policy uncertainty.•By contrast, Japanese yen is positively correlated with the US economic policy uncertainty.•Those correlations tend to be intensified during the US recessions.

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.