This study provides strong evidence for the stability of long-run dema
nd functions for narrowly defined money (M1) in five industrial countr
ies (U.S., Japan, Canada, U.K., and West Germany) using post-war quart
erly data. Evidence of stability is examined using two different estim
ation techniques and through a formal test of parameter constancy desi
gned specifically for cointegrating vectors. In the majority of these
countries, the key to stability is the imposition of a unitary long-ru
n income elasticity that is rarely rejected by the data.