Abstract
The price fluctuation in China has been very sharp since economic reform and the open-door policy were introduced in 1978. What has caused the price fluctuation in China? Is it based on the factor of the goods market， or is it based on the factor of the money market?
In order to maintain price stability in China， what monetary policy will be effective? In this paper， bearing the above issues in mind， the price fluctuation in China after economic reform was first surveyed. Then the cause of the price fluctuation in China was analyzed, making use of the P* model which analyzes the pressure of the price fluctuation from both sides of the money market and the goods market. Finally， the management of an effective monetary policy in China was considered.
This empirical analysis showed that not only monetary factors but also real factors have a significant influence on the price fluctuation in China. In the management of the monetary policy which should aim at price stability from now on， it is indispensable to tum one's eyes not only to changes in the money market but also to those in the goods market. In addition, since the interest rate is not significant in the estimation of the money demand function， in order for the interest rate to function as a means of monetary adjustment from now on, the liberalization of the interest rate is necessary.
