Essays in asset pricing and macroeconomics

In this dissertation we analyze the decision process of firms and individuals along two dimensions which are central to the field of asset pricing and macroeconomics. In the first chapter, we study the pricing decision of the firm in a framework where customer base matters. Surveys of managers show that the main reason why firms keep prices stable is that they are concerned about losing customers or market share. We construct a model in which firms care about the size of their customer base. Firms and customers form long-term relationships because consumers incur costs to switch sellers. In this environment, firms view customers as long-lived assets. We use a general equilibrium framework where industries and firms are buffeted by idiosyncratic marginal cost shocks. We obtain three main results. First, cost pass-through into prices is incomplete. Second, the degree of pass-through is an increasing function of the persistence of cost shocks. Third, there is a non-monotonic relationship between the size of switching costs and the rate of pass-through. In addition, we characterize the heterogenous response across industries to marginal cost shocks. The implications of our model are consistent with empirical evidence. We also show an application to the field of international economics.; In the second chapter we study the quantitative implications of the interaction between robust control and stochastic volatility for key asset pricing phenomena. We present an equilibrium term structure model in which output growth is conditionally heteroskedastic. The agent does not know the true model of the economy and chooses optimal policies that are robust to model misspecification. The choice of robust policies greatly amplifies the effect of conditional heteroskedasticity in consumption growth, improving the model's ability to explain asset prices. In a robust control framework, stochastic volatility in consumption growth generates both a state-dependent market price of model uncertainty and a stochastic market price of risk. We estimate the model and show that the model is consistent with key empirical regularities that characterize the bond and equity markets. We also characterize empirically the set of models the robust representative agent entertains, and show that this set is statistically 'small'.