diff --git a/matlab/backward_model_inversion.m b/matlab/backward_model_inversion.m
new file mode 100644
index 000000000..ed144cbcf
--- /dev/null
+++ b/matlab/backward_model_inversion.m
@@ -0,0 +1,121 @@
+function [endogenousvariables, exogenousvariables] = backward_model_inversion(constraints, exogenousvariables, initialconditions, endo_names, exo_names, freeinnovations, DynareModel, DynareOptions, DynareOutput)
+
+% INPUTS
+% - constraints [dseries] with N constrained endogenous variables from t1 to t2.
+% - exogenousvariables [dseries] with Q exogenous variables.
+% - initialconditions [dseries] with M endogenous variables starting before t1 (M initialcond must contain at least the state variables).
+% - endo_names [cell] list of endogenous variable names.
+% - exo_names [cell] list of exogenous variable names.
+% - freeinstruments [cell] list of exogenous variable names used to control the constrained endogenous variables.
+%
+% OUTPUTS
+% - endogenous [dseries]
+% - exogenous [dseries]
+%
+% REMARKS
+
+% Copyright (C) 2017 Dynare Team
+%
+% This file is part of Dynare.
+%
+% Dynare is free software: you can redistribute it and/or modify
+% it under the terms of the GNU General Public License as published by
+% the Free Software Foundation, either version 3 of the License, or
+% (at your option) any later version.
+%
+% Dynare is distributed in the hope that it will be useful,
+% but WITHOUT ANY WARRANTY; without even the implied warranty of
+% MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the
+% GNU General Public License for more details.
+%
+% You should have received a copy of the GNU General Public License
+% along with Dynare. If not, see .
+
+% Get indices for the calibrated and free innovations.
+freeinnovations_id = zeros(length(freeinnovations), 1);
+if length(freeinnovations)0);
+
+% Get indices of variables appearing at time t.
+iy0 = find(DynareModel.lead_lag_incidence(2,:)>0);
+
+% Set indices for trust_region algorithm.
+idx = 1:DynareModel.endo_nbr;
+jdx = 1:(nyfree+nxfree);
+
+% Build structure to be passed to the objective function.
+ModelInversion.nyfree = nyfree;
+ModelInversion.nyctrl = nyctrl;
+ModelInversion.nxfree = nxfree;
+ModelInversion.nxcalb = nxcalb;
+ModelInversion.y_constrained_id = vec(DynareModel.lead_lag_incidence(2,controlledendogenousvariables_id));
+ModelInversion.y_free_id = vec(DynareModel.lead_lag_incidence(2,freeendogenousvariables_id));
+ModelInversion.x_free_id = freeinnovations_id;
+ModelInversion.J_id = [ModelInversion.y_free_id ; sum(DynareModel.lead_lag_incidence(:)>0)+ModelInversion.x_free_id];
+
+% Get the name of the dynamic model routines.
+model_dynamic = str2func([DynareModel.fname,'_dynamic']);
+model_dtransf = str2func('dynamic_model_for_inversion');
+
+% Initialization of vector y (free endogenous variables and free innovations).
+y = NaN(nyfree+nxfree);
+
+% Initialization of the returned simulations (endogenous variables).
+Y = NaN(DynareModel.endo_nbr, nobs(constraints)+1);
+initialconditions
+constraints.dates(1)
+Y(:,1) = initialconditions(constraints.dates(1)-1).data(1:DynareModel.endo_nbr);
+for i=1:nyctrl
+ Y(controlledendogenousvariables_id(i),2:end) = transpose(constraints.data(:,i));
+end
+
+% Initialization of the returned simulations (exogenous variables).
+X = exogenousvariables{exo_names{:}}.data;
+
+% Inversion of the model, solvers for the free endogenous and exogenous variables (call a Newton-like algorithm in each period).
+for it = 2:nobs(constraints)+1
+ % Set the lagged values of the endogenous variables.
+ ylag = Y(iy1,it-1);
+ % Set the current values of the constrained endogenous variables.
+ ycur = Y(controlledendogenousvariables_id,it);
+ % Vector z gather the free endogenous variables (initialized with lagged
+ % values) and the free exogenous variables (initialized with 0).
+ z = [Y(freeendogenousvariables_id,it-1); zeros(nxfree, 1)];
+ % Solves for z.
+ z = dynare_solve(model_dtransf, z, DynareOptions, model_dynamic, ylag, ycur, X, DynareModel.params, DynareOutput.steady_state, it, ModelInversion);
+ % Update the matrix of exogenous variables.
+ X(it,freeinnovations_id) = z(nyfree+1:end);
+ % Update the matrix of endogenous variables.
+ Y(freeendogenousvariables_id,it) = z(1:nyfree);
+end
+
+endogenousvariables = dseries(Y', constraints.dates(1)-1, endo_names);
+exogenousvariables = dseries(X(2:end,:), constraints.dates(1), exo_names);
\ No newline at end of file
diff --git a/matlab/dynamic_model_for_inversion.m b/matlab/dynamic_model_for_inversion.m
new file mode 100644
index 000000000..995f1b71f
--- /dev/null
+++ b/matlab/dynamic_model_for_inversion.m
@@ -0,0 +1,39 @@
+function [r, J] = dynamic_model_for_inversion(z, dynamicmodel, ylag, ycur, x, params, steady_state, it_, ModelInversion)
+
+% Copyright (C) 2017 Dynare Team
+%
+% This file is part of Dynare.
+%
+% Dynare is free software: you can redistribute it and/or modify
+% it under the terms of the GNU General Public License as published by
+% the Free Software Foundation, either version 3 of the License, or
+% (at your option) any later version.
+%
+% Dynare is distributed in the hope that it will be useful,
+% but WITHOUT ANY WARRANTY; without even the implied warranty of
+% MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the
+% GNU General Public License for more details.
+%
+% You should have received a copy of the GNU General Public License
+% along with Dynare. If not, see .
+
+% Set up y
+y = zeros(length(ylag)+ModelInversion.nyfree+ModelInversion.nyctrl,1);
+y(1:length(ylag)) = ylag;
+
+y(ModelInversion.y_constrained_id) = ycur;
+if ModelInversion.nyfree
+ y(ModelInversion.y_free_id) = z(1:ModelInversion.nyfree);
+end
+
+% Update x
+x(it_, ModelInversion.x_free_id) = transpose(z(ModelInversion.nyfree+(1:ModelInversion.nxfree)));
+
+if nargout>1
+ [r, Jacobian] = feval(dynamicmodel, y, x, params, steady_state, it_);
+else
+ r = feval(dynamicmodel, y, x, params, steady_state, it_);
+ return
+end
+
+J = Jacobian(:,ModelInversion.J_id);
\ No newline at end of file
diff --git a/matlab/model_inversion.m b/matlab/model_inversion.m
index 311dc1ef2..6c873c655 100644
--- a/matlab/model_inversion.m
+++ b/matlab/model_inversion.m
@@ -1,12 +1,13 @@
-function [endogenousvariables, exogenousvariables] = model_inversion(constraints, exogenousvariables, initialconditions, DynareModel)
-
-global oo_
+function [endogenousvariables, exogenousvariables] = model_inversion(constraints, ...
+ exogenousvariables, ...
+ initialconditions, DynareModel, DynareOptions, DynareOutput)
% INPUTS
% - constraints [dseries] with N constrained endogenous variables from t1 to t2.
% - exogenousvariables [dseries] with Q exogenous variables.
% - initialconditions [dseries] with M endogenous variables starting before t1 (M initialcond must contain at least the state variables).
% - DynareModel [struct] M_, Dynare global structure containing informations related to the model.
+% - DynareOptions [struct] options_, Dynare global structure containing all the options.
%
% OUTPUTS
% - endogenous [dseries]
@@ -31,7 +32,7 @@ global oo_
% You should have received a copy of the GNU General Public License
% along with Dynare. If not, see .
-if ~isequal(nargin, 4)
+if ~isequal(nargin, 6)
error('model_inversion: This routine require six input arguments!')
end
@@ -71,6 +72,15 @@ end
endo_names = cellstr(DynareModel.endo_names);
exo_names = cellstr(DynareModel.exo_names);
+% Use specidalized routine if the model is backward looking.
+if ~DynareModel.maximum_lead
+ [endogenousvariables, exogenousvariables] = ...
+ backward_model_inversion(constraints, exogenousvariables, initialconditions, ...
+ endo_names, exo_names, freeinnovations, ...
+ DynareModel, DynareOptions, DynareOutput);
+ return
+end
+
% Initialize fplan
fplan = init_plan(crange);
@@ -93,10 +103,4 @@ end
f = det_cond_forecast(fplan, initialconditions, crange);
endogenousvariables = f{endo_names{:}};
-exogenousvariables = f{exo_names{:}};
-
-%if observed_exogenous_variables_flag
-% for i=1:length(list_of_observed_exogenous_variables)
-% exogenousvariables{list_of_observed_exogenous_variables{i}} = observed_exogenous_variables{list_of_observed_exogenous_variables{i}};
-% end
-%end
\ No newline at end of file
+exogenousvariables = f{exo_names{:}};
\ No newline at end of file