Abstract: In recent years, the Federal Reserve frequently switches the monetary policy between typical policy and atypical policy, the heterogeneity have made a dynamic effect on China's economy, which caused that the spillover effect captured by constant parameter model is lack of economic meaning. In this paper, we construct a factor-augmented vector autoregressive model with time-varying coefficients and stochastic volatility,and use it to study the phenomenon and the mechanism of the dynamic effect from the perspectives of macro-economy, private economy and finance market. It is found that the phenomenon of the dynamic effect lies on two sides. One side is that both of the tight monetary policy and quantitative easing monetary policy of Federal Reserve made a negative effect on China's economy in different periods, which means that the same monetary policy would make a different effect on China's economy in different periods, and the other side is that there is a monotone decreasing of Federal Reserve's monetary policy shocks on Chinese macro-economy, a monotone increasing of Federal Reserve's monetary policy shocks on Chinese financial market, and a relatively smooth effect of Federal Reserve's monetary policy shocks on Chinese private economy. The source of the dynamic effect lies on the difference of transmission mechanism. Under the fixed exchange rate system, Federal Reserve's monetary policy affects the capital and financial account by affecting the cost of carry, thus leading to the effects on Chinese economy. While, under the floating exchange rate system, Federal Reserve's monetary policy affect the current account by affecting the exchange rate, thus leading to the effects on Chinese economy. We suggest that the PBOC should reduce the floating space of RMB exchange rate, and make a quantitative easing monetary policy to face Federal Reserve's tight monetary policy; and make quantitative easing fiscal policy, tight monetary policy, and reduce the weight of dollar in currency basket to face Federal Reserve's quantitative easing monetary policy.

Key Words: Federal Reserve; Monetary Policy; China's Economy