As the macro economy is composed of various sectors, its volatility is the net effect of different sectors’ volatilities, which comprises sector volatility and the interactions between sectors. By using the three-sector New Keynesian DSGE model, this paper analyzes the four mechanisms through which the industrial structure promotes the stabilization of economic fluctuations: the sticky price mechanism, the switching demand mechanism among sectors, the mechanism of the strategic complementariness in price setting and the mechanism of compositional changes of relative size of sectors. The numerical simulations indicate that the three-sector New Keynesian DSGE model has better performance than the one-sector model, and the model can reproduce the stylized fact that the industrial volatility is greater than the total output volatility in China. In addition, industrial structure upgrade can reduce approximately 20% of the macro-economic fluctuations. The conclusions imply that the government should promote the upgrading of industrial structure to stabilize the macro economy.