Since the beginning of reform and opening up, China's economic performancehas a typical cyclical characteristic. Because of the deviations of expectation and thelag inherent in the policy, China's economy can not escape the cycle of illness. As animportant instrument of macroeconomic regulation and control, the monetary policyaims at reducing the economic volatility. If we can identify the leading indicators inconformity with China's conditions to predict accurately the economic cycle, and touse certain technologies to implement flexibly the monetary policy in advance, it is ofgreat influence to macroeconomic policies aimed at reducing fluctuations in theeconomy. At present, however, it lacks a foundation of the system of economicforecasting monetary policy and the central bank has no systematical practice in thisregard. Therefore, it is necessary and helpful to strengthen the research on leadingindicators, to establish systematically the leading indicators of economic performanceand to forecast timely the macroeconomic fluctuations and the economic trend.Specifically, it will raise the level of the central bank's macro-control and makemonetary policy more forward-looking, scientific and efficient.This paper uses both the qualitative and quantitative research methods. The maincontents include: review of literature, investigation of the dynamical inconsistencybetween economic cycle and monetary policy, selection of major leading indicatorsassociated with economic fluctuations with empirical methods, theoretical analysisof the inherent links between leading indicators and monetary policy, theestablishment of economic growth forecasting model with leading indicators and acomprehensive evaluation methods, the establishment of inflation and deflationforecast model, theoretic and empirical study of China's money demand function andmoney supply mechanism. Based on studies above, an economic-forecast-basedmonetary policy framework and related recommendations are presented at last.