Both long and short run real money demand functions of Malaysia with m
oney variously defined as M0, M1 and M2 have been estimated using the
Johansen cointegration technique and the general-to-specific approach
respectively. The period under review is 1973Q1-1991Q4. While liberali
zation and innovation in the Malaysian financial system have not ruled
out the existence of stable long run money demand relationships as at
tested to by the presence of cointegrating vectors, they have rendered
short run relationships unstable. Hence, it may not be appropriate fo
r one to conclude that monetary policy efficacies have been sacrosanct
to the financial liberalization and innovation process on the basis o
f cointegrating relationships. This is especially true as monetary pol
icy is essentially a short run stabilization policy aimed at ironing o
ut undue macroeconomic fluctuations. This prompted us to re-estimate s
hort run money demand functions over more recent periods in order to b
oost the policy relevance of the estimated parameters.