Short-term capital inflows may lead to balance of payments problems
The study looked at how fiscal deficits, current account deficits, and short term capital inflow are related in certain emerging market economies. They found that there is a back-and-forth connection between these factors, meaning they can influence each other. Short term foreign capital can help finance current account deficits, but it could also cause problems for the economy. To avoid these issues, it's important for authorities to control fiscal deficits and attract foreign investments.