Abstract
By adopting the bounds testing for cointegration framework in Pesaran et al. (2001), this paper investigates the dynamics of money demand in Vietnam from 1999 to 2011. The empirical result delivers strong evidence for a long-run relationship between money demand and income, expected inflation, exchange rates and gold price, regardless of M1, M2 or M2 without foreign currency deposits is considered. The stock price movements only matter in M2 and M2D. More crucially, the stability test conclusion points out the presence of stable money demand in Vietnam only for M1 and M2D while M2 demand manifesting some temporary instability. This results in the need of calling into question the actual monetary targeting strategy of the Central bank.
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