Abstract: Since the US broke-out the sub-prime crisis, financial stability has become the emphases attention problem. In this paper,the financial stability index of China is fitted from a series of basic indexes and the time-varying characteristics of the mechanism of monetary policy and financial stability are studied through the TVP-VAR model. The empirical results show that: the mechanism between monetary policy and financial stability has remarkable stage characteristics,at the current stage, the moderately loose monetary policy can effectively improve financial stability; the regulation effect of quantitative monetary policy is significantly higher than price-based one, so policy authorities should put the quantitative monetary policy as main means when they are regulating financial stability; the effect of monetary policy on the financial stability is more a long-term effect, therefore the monetary authorities should focus on maintaining the long-term stability of the financial system, take a relatively prudent monetary policy and maintain the continuity of the monetary policy, so as to establish a good expectations for the public.

Key words: financial stability, monetary policy, TVP-VAR model