In this paper, we show that for panel
AR(p) models, an instrumental
variable (IV) estimator with instruments deviated
from past means has the same asymptotic distribution
as the infeasible optimal IV estimator when both
N and T, the
dimensions of the cross section and time series, are
large. If we assume that the errors are normally
distributed, the asymptotic variance of the proposed
IV estimator is shown to attain the lower bound when
both N and T are
large. A simulation study is conducted to assess the
estimator.