Financial market interdependence has been at the epicenter of the crisis in the euro area. This paper tests for the existence of financial contagion during this crisis, defined as the international transmission of country-specific shocks beyond the normal channels of financial interdependence. Since contagion relates purely to countryspecific shocks, we combine the standard contagion test of Favero and Giavazzi (2002) with an innovative narrative approach to separate out global and euro area shocks from country-specific shocks. Financial contagion has been widespread during the crisis in the euro area. About 80 percent of country-specific shocks are contagious. We also find significant evidence of flight-to-safety effects between the core and the periphery of the euro area. Global and euro area shocks have been important drivers of sovereign bond yields in the euro area.JEL Classification: E44; F34; F36; G01; G12.

Financial crises take a heavy toll on output growth. We assess the role of structural reforms in reducing the output losses resulting from financial crises across advanced economies, emerging and developing economies, and low‐income developing economies. We also revisit the role of macroeconomic policies in this context. The impact of crises on output growth differs between types of crises and economies, thus warranting sample splits along these lines. Some but not all reforms and policies help to reduce the output losses of crises in the medium term, highlighting the need not to overgeneralize the effectiveness of reforms and policies. Further research is warranted to further explore the heterogeneity in the impact of financial crises on output growth and to better understand when and how specific structural reforms and macroeconomic policies can mitigate the output costs of financial crises. (JEL E32, E44, E63, G28, O47)