Abstract: The impact of monetary policy and credit conditions on China’s total factor productivity fluctuations is studied by a two－sector dynamic stochastic general equilibrium (DSGE) model with different productivity and credit constraints. Studies have shown that the exogenous impact of macroeconomic policies will change the efficiency of capital allocation among departments，leading to endogenous volatility of total factor productivity (TFP). The impact of policy shocks on TFP is mainly determined by private enterprises being subject to credit constraints. Tight monetary policy and rising private sector credit collateral requirements will reduce resource allocation efficiency，leading to a long-term decline in TFP; changes in private sector credit conditions are important exogenous shocks that can explain a large portion of output growth volatility and the growth rate of private sector investment is fluctuating.

Keyword: TFP; Resource allocation; Monetary policy; Credit shock; Private enter