Using firm-level data from the 1990s for publicly traded manufacturing companies in Israel, a liberalized and open economy, we find that monetary policy affects real investment and that the effect operates differentially on the firms in our sample – the greater its export intensity, the less a firm is affected by tight money. We examine several interpretations and conclude that the evidence indicates that the impact is transmitted primarily through the balance sheets of firms whose access to foreign currency funding is relatively constrained.

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