Exhaled breath biomarkers are an important emerging field. The fractional concentration of exhaled nitric oxide (FeNO) is a marker of airway inflammation with clinical and epidemiological applications (e.g., air pollution health effects studies). Systems of differential equations describe FeNO—measured non-invasively at the mouth—as a function of exhalation flow rate and parameters representing airway and alveolar sources of NO in the airway. Traditionally, NO parameters have been estimated separately for each study participant (Stage I) and then related to covariates (Stage II). Statistical properties of these two-step approaches have not been investigated. In simulation studies, we evaluated finite sample properties of existing two-step methods as well as a novel Unified Hierarchical Bayesian (U-HB) model. The U-HB is a one-step estimation method developed with the goal of properly propagating uncertainty as well as increasing power and reducing type I error for estimating associations of covariates with NO parameters. We demonstrated the U-HB method in an analysis of data from the southern California Children’s Health Study relating traffic-related air pollution exposure to airway and alveolar airway inflammation.