The Missing Money and the Sudden Inflation

The price index had begun to rise since the second half of 2003. In order to control the possible inflation, the central bank had employed tight monetary policy. However, the monetary policy had not realized the objectives of controlling price. The domestic price increased at the great pace after undergoing long-term deflation. This paper tried to explain the profound reason of the sudden inflation using the “hypothesis of missing money” so as to enrich the study of monetary policy theory and to raise some countermeasures for improving the efficiency of China's monetary policy.