The estimation of money demand function provides important insight for theory and policy making. The stable
demand for money in the long run is very important for the implementation of monetary policy. The income and interest
rate elasticity of money demand in Croatia is estimated in this paper using Johansen co integration method. In line with
previous research, the quarterly data on money demand, interest rate and gross domestic product in Croatia are used in the
co integration analysis. The trace test and maximum eigen value test both show the existence of one co integrating relation
and the long run money demand function is estimated. In the long run both output and interest rate are significant in
explaining money demand. The impact of domestic income on money demand is positive, while interest rate impact is
negative, what is in line with relevant empirical research and economic theory. The error correction term shows that
variables return into equilibrium for approximately13 quarters. The conducted analysis offers the coefficients of interest
elasticity and income elasticity of money demand which can serve in future research for calibration of dynamic stohastic
general equilibrium models of Croatian economy
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