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Hi, I am estimating a model with a dynamic component. The model contains a one-period lag of the dependent variable and four other contemporaneous variables. I can use a 2SLS method, but it is suggested that I explore the Arellano Bond method. I follow the dynamic panel wizard for the GMM/DPD method. When I run the regression I receive the message "number of instruments greater than number of observations". This is an unbalanced panel covering over 40 cross sections and 60 time periods and I am using the variables as above. Why would this error message appear? Is the AB method not suitable for such large time periods?

You probably don't have enough observations. With the AB model you can use a lot of instruments very quickly.

I've 1600 observations. When I reduce this to just 3-4 time periods the error code changes to near singular matrix, which is what one would expect. How does the full period model generate over 1600 instruments?

AB model generates more instruments the more time periods you have.