This study investigates the interconnections between the financial system and the real economy using Vector Autoregressive (VAR) models and their advanced variants. Analyzing data from five Ex-Communist European countries (Romania, Czech Republic, Poland, Slovakia, and Hungary), the Country-Level Index of Financial Stress (CLIFS) is employed, alongside Industrial Production Index and GDP, as proxies for financial and real economic activity. Findings reveal bidirectional causal relationships in some countries and unidirectional relationships in others, with financial stress having significant negative short-term impacts on industrial production. Using Simple Switching VAR and Markov-Switching VAR models, distinct crisis periods were identified, thus demonstrating that financial system disturbances precede real economy downturns.