PARAMETER INSTABILITY IN AGGREGATE US IMPORT DEMAND-FUNCTIONS

The paper examines parameter stability in aggregate US import demand f unctions for the time period 1972-90. We identify in particular whethe r parameter stability depends upon the definitions used to represent t he dependent and independent variables. Significant instability is fou nd for 1974/75 in all models tested. For the 1975-90 period, parameter stability depends on the definition of the relative price term employ ed in the model. Equations which exclude computer imports tend to have fewer stability problems than non-oil import demand models. We also f ind that the most stable models generate the best out-of-sample foreca sts.