This paper quantifies the role of the housing sector in the business cycle of advanced economies. We identify housing demand and supply shocks in a standard monetary VAR model augmented with a housing sector, by combining sign restrictions with conventional exclusion restrictions. We estimate the relative importance of housing shocks for consumption, house prices and residential investment, and relate them to an index of housing finance development, as well as a few other variables possibly explaining their cross country variation. The main findings of the paper are as follows: (i) Housing shocks (demand and supply combined) explain about 20 percent of consumption variance in the typical OECD economy over a three-year forecast horizon, and their importance seems to have increased over time. There is however a strong heterogeneity across countries; (ii) housing demand shocks are much more important than housing supply shocks for consumption volatility and are also transmitted in a qualitatively different manner; (iii) the distribution of housing shocks in the cross section of countries we consider is associated with the degree of mortgage market development; and (iv) contrary to conventional wisdom, the global imbalances do not seem to have had a large role on the boom-bust cycle of the typical OECD economy. We interpret this evidence as consistent with housing finance innovation having amplified the spillovers from the housing sector to the rest of the economy over the last two decades in these economies by strengthening the role of housing as collateral for non-housing consumption, via house prices. The recent boom and bust in house prices and residential investments in many advanced countries has ignited a debate on the link between housing and the business cycle—e.g., Leamer (2007) for instance. At the same time, over the last two decades, the national systems of housing finance of the most advanced economies have undergone dramatic changes, adding to the uncertainty on the link between housing and economic activity. By increasing the availability and lowering the cost of housing finance, these changes have contributed to the spectacular growth of mortgage debt in a number of countries that reformed their housing finance systems more aggressively.