In economic applications, the presence of autocorrelation in the residuals is often the result of a mis-specification of the underlying model(1). One important form of mis-specification occurs when the true model is dynamic and the investigator wrongly assumes that it is static. The estimated residuals from a regression equation are then likely to show some degree of autocorrelation. In such cases, the Durhin-Watson d statistic(2) gives ample warning that something is wrong. Rut, although the signal is right, the reason for it might not have anything to do with autocorrelation. It might simply mean that some dynamic effect has heen neglected.