In this paper I intend to estimate a bivariate GARCH-in-Mean in order to test four hypotheses about Brazilian economy. First, I want to know whether inflation uncertainty has a positive impact on the level of inflation as predicted by Cukierman and Meltzer (1986). Second, I want to test if this uncertainty has a negative impact on growth as proposed by Friedman (1977). Third, it will be tested the hypothesis of a negative impact of uncertainty growth on the level of growth as pointed out by Ramey and Ramey (1991). Finally, I will test if this uncertainty has a positive impact on the level of inflation as predicted by Deveraux (1989). The findings are a little mixed but in all settings they corroborate Cukierman and Meltzer explanation and some of them corroborate Friedman's theory.
Inflation; growth; uncertainty; bivariate GARCH-in-mean
