Media type: E-Article Title: What to do if a dollar is not a dollar? The impact of inflation risk on production and risk management Contributor: Adam‐Müller, Axel F. A. imprint: Wiley, 2002 Published in: Journal of Futures Markets Language: English DOI: 10.1002/fut.10012 ISSN: 0270-7314; 1096-9934 Keywords: Economics and Econometrics ; Finance ; General Business, Management and Accounting ; Accounting Origination: Footnote: Description: <jats:title>Abstract</jats:title><jats:p>An entrepreneur faces two types of risk: one from income generation, one from income spending. His income from firm profits is risky due to output price fluctuations and other risks. As a consumer, he is also exposed to inflation risk since he maximizes expected utility of real income. This article focuses on optimal production and risk management decisions of a risk‐averse entrepreneur jointly facing tradable output price risk and untradable inflation risk. Inflation risk applies multiplicatively to the entrepreneur's entire nominal income. Relative risk aversion and the risks' joint distribution determine the effect of introducing a futures market on production. For dependent risks, this effect may be negative if relative risk aversion is above one. Relative risk aversion and the joint distribution also determine optimal risk management with futures contracts where speculation on a real risk premium and cross hedging may be conflicting objectives. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:371–386, 2002</jats:p>