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

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  • Kido, Yosuke

Abstract

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.

Suggested Citation

  • Kido, Yosuke, 2016. "On the link between the US economic policy uncertainty and exchange rates," Economics Letters, Elsevier, vol. 144(C), pages 49-52.
    • Handle: RePEc:eee:ecolet:v:144:y:2016:i:c:p:49-52
    DOI: 10.1016/j.econlet.2016.04.022
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    References listed on IDEAS

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    5. Jonathan Brogaard & Andrew Detzel, 2015. "The Asset-Pricing Implications of Government Economic Policy Uncertainty," Management Science, INFORMS, vol. 61(1), pages 3-18, January.
    6. Markus K. Brunnermeier & Stefan Nagel & Lasse H. Pedersen, 2009. "Carry Trades and Currency Crashes," NBER Chapters, in: NBER Macroeconomics Annual 2008, Volume 23, pages 313-347, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Economic policy uncertainty; Spillover; Dynamic conditional correlation; Real effective exchange rate;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance

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