Page - 76 - in The Austrian Business Cycle in the European Context

76 7.6 Mean absolute deviation This measure is constructed similarly to the standard deviation (42) Instead of squaring all deviations from the mean (or trend, as in our application) to render them positive for summing up, the mean absolute deviation just cumulates absolute values of these deviations. The use of absolute deviations instead of squared ones should make this statistic more robust in that single large deviations are not weighted by squares. However, Dickerson - Gibson - Tsa- kalatos ( 1998) found no substantial difference between squared and mean deviations in analysing demand components within the European Union. 7.7 Triangle approximation Harding - Pagan (2002) proposed a method of estimating the se- verity/strength of recessions/expansions. They argue that business cycle fluctuations are defined by their deviation from trend as well as by their duration. Therefore, they approximated the area of half of a lobe formed by a business cycle phase by a triangle: (43) Cr; = 0.5 (D; A;) with Cr; being the right-angled triangle approximating the area of half a phase of a business cycle representing the cumulative de- viations from cyclical neutrality, and D; and A; the duration and amplitude of the i-th cycle. As the actual cumulative movements (c;) deviate in practice from the triangle approximation Cr;• a fur- ther index measuring excess cumulated movements was pro- posed by the authors