Abstract: As China enters the new economic normal period, the imbalance of industrial structure has become increasingly hampered by economic growth. At the same time, the global economic cycle has accelerated significantly, the external economic environment has become increasingly complex, and monetary policy has produced a nonlinear control effect on the industrial structure. The long-term unchanging regulation effect of the monetary policy researched by the constant parameter measurement model in the industrial structure adjustment is seriously lacking practical significance. Based on this, this paper constructs a Markov system conversion vector auto regressive model with factor expansion, and applies this model to study the nonlinear effect of China's monetary policy on industrial structure optimization. The study found that during the economic downturn, quantitative easing of short-term price-based monetary policy tools and tight long-term quantitative monetary policy tools, loose short-term quantitative monetary policy tools and tight long-term price monetary policy tools were supplemented. The combination of monetary policy operations is more conducive to the optimization and upgrading of industrial structure; in the period of economic rise, tight short-term price monetary policy tools and tight short-term quantitative monetary policy tools, loose long-term price monetary policy tools and loose long-term quantities The monetary policy operation portfolio supplemented by monetary policy tools can accelerate the process of optimizing and upgrading the industrial structure.

Key Words: MS-FAVAR Model; Nonlinear Effect; Monetary Policy; Industrial Structure Optimization