  This paper studies the transmission of US monetary policy shocks into
Emerging Markets emphasizing the role of investment and financial
heterogeneity. First, we use a panel SVAR model to show that a US interest
tightening leads to a persistent recession in Emerging Markets driven by a
sharp reduction in aggregate investment. Second, we study the role of firms'
financial heterogeneity in the transmission of US interest rate shocks by
exploiting detailed balance sheet dataset from Chile. We find that more
indebted firms experience greater drops in investment in response to a US
tightening shock than less indebted firms. This result is at odds with recent
evidence from US firms, even when using the same identification strategy and
econometric methods. Third, we rationalize this finding using a stylized model
of heterogeneous firms subject to a tightening leverage constraint. Finally, we
present evidence in support of this hypothesis as well as robustness checks to
our main results. Overall, our results suggests that the transmission channel
of US monetary policy shocks within and outside the US differ, a result novel
to the literature.
