In this paper, the authors estimate a stable demand for money relationship for Italy using a long series of historical data. They extend previously available data sets to obtain a sample for the years 1861 to 1990 and use cointegration analysis and two-stage estimation procedures to obtain a dynamic model for M2 demand. By employing a small number of explanatory variables and a nonlinear error-correction model, the authors find a stable demand for money relationship. Their model incorporates significant inflation and interest rate effects in contrast to previous studies of this type. Copyright 1996 by Oxford University Press.