This paper is an empirical investigation into the cross-country variation of the liquidity effect -- the negative response of real interest rates to money supply shocks. We estimate the liquidity effect for a sample of 21 countries using VAR models in which money supply shocks are restricted to be neutral in the long-run. We then regress our estimates of the liquidity effect on proxies for transactions costs in financial markets across countries, according to the implications of limited participation theories of the liquidity effect. Our findings provide support for limited participation models -- for some of our proxies, countries having relatively low financial market transactions costs exhibit relatively small liquidity effects.