The Determinants and Stability of Real Money Demand in Vietnam, 1999-2009

Understanding the money demand function is highly important for monetary policy implementation, especially in a monetary targeting framework. The paper uses cointegration analysis and a reduced-form short-run error correction model to investigate the demand for money in Vietnam between 1999 and 2009. We find evidence for a cointegrating relationship between the real money demand, income, the foreign interest rate, and the real stock price. More importantly, statistical tests show that real money demand in Vietnam is stable in this period.