Parameter instability in aggregate US import demand functions

The paper examines parameter stability in aggregate US import demand functions for the time period 1972–1990. We identify in particular whether parameter stability depends upon the definitions used to represent the dependent and independent variables. Significant instability is found for 1974/75 in all models tested. For the 1975–1990 period, parameter stability depends on the definition of the relative price term employed in the model. Equations which exclude computer imports tend to have fewer stability problems than non-oil import demand models. We also find that the most stable models generate the best out-of-sample forecasts.