Taking into account the amorphous alloy ribbon with the 180°magnetic domain walls and transverse bias magnetic field, and adopting multi-domain structure model, the theory of giant magneto-impedance (GMI) effect was found by minimizing the total free energy and by the solution of the Maxwell’s equations combining with Landau-Lifshitz equation. A new four-state method is proposed to calculate the average magnetic permeability of four states of the amorphous materials, which is used to replace the permeability obtained based on the single domain model. The method has an advantage in explaining the GMI effect over the theory established by single domain model.