In this paper, we construct a factor-augmented vector auto-regressive model with time-varying coefficients and stochastic volatility, and use it to decompose the economic fluctuation. Based on this, we give the dynamic response of the mainly economic variables to the monetary policy shock. The results show that: 1) Structural factors explained 34.12% of economic fluctuation, cyclical factors explained 65.88%, the two factors have significant influence on the economy; 2) During the sample period, there are three break points. They are 1961, 1987 and 1996; 3)Different variables have different response to the shock of monetary policy; 4) In different period, the response of the economic variables to the monetary policy shock has significant difference.