We consider a firm who faces business risk due to stochastic goods market outcomes and identify two risk channels of pricing and production. One channel is based on the passive risk consideration, through which the producer raises prices to abide by riskier business and thereby associates higher...

In a many-sector production economy where each sector's output is used as input for every sector, a general equilibrium implies zero profit for everyone, whereas one market in excess demand implies positive profits for all others in their partial equilibrium. If more than one market is stuck in...

We re-investigate the delayed overshooting puzzle. We find that delayed overshooting is primarily a phenomenon of the 1980s when the Fed was under the chairmanship of Paul Volcker. Related findings are as follows: (1) Uncovered interest parity fails to hold during the Volcker era and tends to...

This paper proposes an explanation for mixed evidence on the behaviors of markups. The key mechanism consists of two complementary channels of risk internalization that arise when firms face uninsurable business risks. One channel is based on passive risk consideration, through which firms raise...