In this paper we show how risk free bonds of different maturities can be used to replace state contingent debt in a general equilibrium dynamic optimal taxation problem. In particular, we show that if the state of the economy can only take a finite number N of values each period, then the...

We analyze optimal ï¬scal,monetary and exchange rate policy in a simple small open econonomy model with price setting frictions.We perform our analysis in the tradition of optimal dynamic Ramsey problems.We characterize optimal allocations and the government policies that implement the optimal...