Abstract: This paper aims to prove the relations between China's macroeconomic fluctuation and the household debts and firm debts by formulating the SVAR model with the seasonal data from 1997 to 2013. The results embody that both household debts and firm debts have different influences on China's macroeconomic fluctuation. The household debts accounts for 30% of the output fluctuation while the firm debts accounts for 40%, a relatively bigger influence. In the short term, the growth of household debt and firm debt will promote the expansion of total output; and the long run, high household debt will hinder economic growth, the impact of firm debt to output leveling off. Therefore, the government should strengthen supervision of financial markets, and guide the household sector and the firm sector to borrow based on their own resources, the reasonable control of debt, reducing the risk of macroeconomic fluctuations.

Key words: household debt, firm debt, macroeconomic fluctuation, SVAR