We analyze the effects of foreign shocks to Korean economy through a
global VAR model including USA, Euro area, Japan and China. For the
identification, we especially assume that countries except Korea have a
recursive structure and that the financial variables may not instantly affect the
real variables. The Korean economy as a small open one is identified through
the exogenous foreign variables and covariance restrictions for the structural
equation errors. The empirical analyses show that Korean economy is affected
by the China economy as well as the economy of United States. Finally,
Korean economic variables showed some co-movements with the foreign
financial and real variables.