diff --git a/matlab/ep/extended_path.m b/matlab/ep/extended_path.m
index e566145bd..beda19f10 100644
--- a/matlab/ep/extended_path.m
+++ b/matlab/ep/extended_path.m
@@ -70,7 +70,8 @@ end
 options_.minimal_solving_period = options_.ep.periods;
 
 % Get indices of variables with non zero steady state
-idx = find(abs(oo_.steady_state)>0);
+idx = find(abs(oo_.steady_state)>1e-6);
+indx = find(abs(oo_.steady_state)<=1e-6);
 
 % Initialize the exogenous variables.
 make_ex_;
@@ -228,7 +229,16 @@ while (t<sample_size)
                 end
             end
             % Test if periods is big enough.
-            if ~increase_periods &&  max(max(abs(tmp(idx,end-options_.ep.lp:end)./tmp(idx,end-options_.ep.lp-1:end-1)-1)))<options_.dynatol.x
+            delta = 0;
+            if ~isempty(idx)
+                delta = max(max(abs(tmp(idx,end-options_.ep.lp:end)./tmp(idx, ...
+                                                                  end-options_.ep.lp-1:end-1)-1)));
+            end;
+            if ~isempty(indx)
+                delta = max(delta,max(max(abs(tmp(indx,end-options_.ep.lp: ...
+                                                  end)-tmp(indx,end-options_.ep.lp-1:end-1)))));
+            end
+            if ~increase_periods &&  delta < options_.dynatol.x
                 break
             else
                 options_.periods = options_.periods + options_.ep.step;
diff --git a/tests/ep/linear.mod b/tests/ep/linear.mod
new file mode 100644
index 000000000..87420c807
--- /dev/null
+++ b/tests/ep/linear.mod
@@ -0,0 +1,41 @@
+var y pie r;
+varexo e_y e_pie;
+
+parameters delta sigma alpha kappa gamma1 gamma2;
+
+delta =  0.44;
+kappa =  0.18;
+alpha =  0.48;
+sigma = -0.06;
+
+gamma1 = 1.5;
+gamma2 = 0.5;
+
+model(block,bytecode,cutoff=0);
+y  = delta * y(-1)  + (1-delta)*y(+1)+sigma *(r - pie(+1)) + e_y; 
+pie  =   alpha * pie(-1) + (1-alpha) * pie(+1) + kappa*y + e_pie;
+r = gamma1*pie+gamma2*y;
+end;
+
+shocks;
+var e_y;
+stderr 0.63;
+var e_pie;
+stderr 0.4;
+end;
+
+steady;
+
+options_.maxit_ = 100;
+options_.ep.verbosity = 0;
+options_.ep.stochastic.status = 0;
+options_.console_mode = 0;
+
+ts = extended_path([],1000);
+
+options_.ep.stochastic.status = 1;
+sts = extended_path([],1000);
+
+if max(max(abs(ts-sts))) > 1e-14
+   error('extended path algorithm fails in ./tests/ep/linear.mod')
+end
\ No newline at end of file