Integrating multidimensional information of financial markets, this paper uses the principal component analysis to synthesize Chinas financial cycle index. On this basis, the TVPSVVAR model is constructed to study the timevarying interaction between Chinas monetary policy, financial cycle and macroeconomic variables during 2003—2017. The study found as follows: (1) There is a significant timevarying interaction between Chinas monetary policy, financial cycle and macroeconomic variables. (2) Financial transmission channels may distort the effectiveness of monetary policy. Through financial transmission channels, monetary policy will not only restrain economic growth, but may also increase inflation. (3) The effect of financial cycle on the output effect of monetary policy lags behind the effect on its price effect. In the short run, the timevarying characteristics of the output effect of monetary policy are not much different from the financial transmission channels. However, over time, the negative impact of financial prosperity on output may eventually distort the output effect of monetary policy and may even have negative macroeconomic effects. Based on this, we believe that the monetary authorities should be wary of the distortion of the effectiveness of the financial prosperity on monetary policy, prudent operation, and should not undertake too many tasks to stimulate output.