We look at the debt composition of industrial firms, using a unique micro-level database, and find that the share of foreign currency debt in total debt depends on its relative price and on the currency composition of income and expenses in the firm's balance sheet. In particular, the share of foreign currency debt increases with export income. This evidence of substitution between local and foreign currency debt indicates that the transmission of monetary policy is only partial.

We find that the currency composition of the firms foreign currency debt has become more diversified during sample years, with a decline in the share of dollar denominated debt. We also find that real activity and financial considerations are important in determining foreign debt currency composition.

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