This study analyzes the effect of monetary supply shocks on the interest rate, prices, stock prices and real output prior to 1997 financial crisis in Korea. This paper used a long-run structural vector error- correction model. This approach identifies monetary policy shocks by imposing cointegration restrictions such as a money demand function and assuming long-run money neutrality. Under this method, this paper resolved two recurring puzzles which are often found in VAR models. Immediately following an expansionary monetary policy shocks the interest rate decreases(if the interest rate increases, it is called as a `liquidity puzzle'). Also following an unanticipated monetary expansion, the price level initially increases(if the price level decreases, it is termed as a `price puzzle').