Table 3 shows government
fiscal balance as a percent of gross domestic
product (GDP) in 1996 for 25 countries (a minus sign indicates a budget deficit).
It is striking that Indonesia had a balanced government budget and none of the
Asian countries that experienced a large depreciation had a serious
fiscal deficit.
Not surprisingly, the
first two columns of Table 4 show that the government
budget deficit is not significant in the exchange rate regression, either by itself or
with the inclusion of the East Asia dummy.
TheR-squared is 0.09 before we
include the East Asia dummy and rises to only 0.10 with that dummy.