diff --git a/matlab/DiffuseKalmanSmoother3.m b/matlab/DiffuseKalmanSmoother3.m
index 5a1db7f22..7d725f542 100644
--- a/matlab/DiffuseKalmanSmoother3.m
+++ b/matlab/DiffuseKalmanSmoother3.m
@@ -1,4 +1,4 @@
-function [alphahat,etahat,a1, aK, a] = DiffuseKalmanSmoother3(T,R,Q,Pinf1,Pstar1,Y,trend,pp,mm,smpl,mf)
+function [alphahat,etahat,a1, aK] = DiffuseKalmanSmoother3(T,R,Q,Pinf1,Pstar1,Y,trend,pp,mm,smpl,mf)
 %function [a,etahat,a1, aK] = DiffuseKalmanSmoother3(T,R,Q,Pinf1,Pstar1,Y,trend,pp,mm,smpl,mf)
 % Modified by M. Ratto
 % New output argument aK: 1-step to nk-stpe ahed predictions)
@@ -20,7 +20,7 @@ function [alphahat,etahat,a1, aK, a] = DiffuseKalmanSmoother3(T,R,Q,Pinf1,Pstar1
 
 global options_
 
-    nk = options_.nk;
+nk = options_.nk;
 spinf   	= size(Pinf1);
 spstar  	= size(Pstar1);
 v       	= zeros(pp,smpl);
@@ -52,81 +52,81 @@ r 		   	= zeros(mm,smpl);
 
 Z = zeros(pp,mm);
 for i=1:pp;
-    Z(i,mf(i)) = 1;
+  Z(i,mf(i)) = 1;
 end
 
 t = 0;
 icc=0;
 newRank	  = rank(Pinf(:,:,1),crit1);
 while newRank & t < smpl
-    t = t+1;
-    a1(:,t) = a(:,t);
-    Pstar(:,:,t)=tril(Pstar(:,:,t))+transpose(tril(Pstar(:,:,t),-1));
-    Pinf(:,:,t)=tril(Pinf(:,:,t))+transpose(tril(Pinf(:,:,t),-1));
-    Pstar1(:,:,t) = Pstar(:,:,t);
-    Pinf1(:,:,t) = Pinf(:,:,t);
-    for i=1:pp
-        v(i,t) 	= Y(i,t)-a(mf(i),t)-trend(i,t);
-        Fstar(i,t) 	= Pstar(mf(i),mf(i),t);
-        Finf(i,t)	= Pinf(mf(i),mf(i),t);
-        Kstar(:,i,t) 	= Pstar(:,mf(i),t);
-        if Finf(i,t) > crit & newRank,  % original MJ: if Finf(i,t) > crit
-            icc=icc+1;
-            Kinf(:,i,t)	= Pinf(:,mf(i),t);
-            Linf(:,:,i,t)  	= eye(mm) - Kinf(:,i,t)*Z(i,:)/Finf(i,t);
-            L0(:,:,i,t)  	= (Kinf(:,i,t)*Fstar(i,t)/Finf(i,t) - Kstar(:,i,t))*Z(i,:)/Finf(i,t);
-            a(:,t)		= a(:,t) + Kinf(:,i,t)*v(i,t)/Finf(i,t);
-            Pstar(:,:,t)	= Pstar(:,:,t) + ...
-                Kinf(:,i,t)*transpose(Kinf(:,i,t))*Fstar(i,t)/(Finf(i,t)*Finf(i,t)) - ...
-                (Kstar(:,i,t)*transpose(Kinf(:,i,t)) +...
-                Kinf(:,i,t)*transpose(Kstar(:,i,t)))/Finf(i,t);
-            Pinf(:,:,t)	= Pinf(:,:,t) - Kinf(:,i,t)*transpose(Kinf(:,i,t))/Finf(i,t);
-            Pstar(:,:,t)=tril(Pstar(:,:,t))+transpose(tril(Pstar(:,:,t),-1));
-            Pinf(:,:,t)=tril(Pinf(:,:,t))+transpose(tril(Pinf(:,:,t),-1));
-            % new terminiation criteria by M. Ratto
-            P0=Pinf(:,:,t);
-            %             newRank = any(diag(P0(mf,mf))>crit);
-            %             if newRank==0, id = i; end,
-            if ~isempty(options_.diffuse_d),  
-                newRank = (icc<options_.diffuse_d);  
-                %if newRank & any(diag(P0(mf,mf))>crit)==0; 
-                if newRank & (any(diag(P0(mf,mf))>crit)==0 & rank(P0,crit1)==0); 
-                    disp('WARNING!! Change in OPTIONS_.DIFFUSE_D in univariate DKF')
-                    options_.diffuse_d = icc;
-                    newRank=0;
-                end
-            else
-                %newRank = any(diag(P0(mf,mf))>crit);                 
-                newRank = (any(diag(P0(mf,mf))>crit) | rank(P0,crit1));                 
-                if newRank==0, 
-                    options_.diffuse_d = icc;
-                end                    
-            end,
-%             if newRank==0, 
-%                 options_.diffuse_d=i;   %this is buggy
-%             end                    
-            % end new terminiation criteria by M. Ratto
-        else 
-            %% Note that : (1) rank(Pinf)=0 implies that Finf = 0, (2) outside this loop (when for some i and t the condition
-            %% rank(Pinf)=0 is satisfied we have P = Pstar and F = Fstar and (3) Finf = 0 does not imply that
-            %% rank(Pinf)=0. [stéphane,11-03-2004].	  
-            Li(:,:,i,t)    = eye(mm)-Kstar(:,i,t)*Z(i,:)/Fstar(i,t);  % we need to store Li for DKF smoother
-            a(:,t) 		= a(:,t) + Kstar(:,i,t)*v(i,t)/Fstar(i,t);
-            Pstar(:,:,t)	= Pstar(:,:,t) - Kstar(:,i,t)*transpose(Kstar(:,i,t))/Fstar(i,t);
-            Pstar(:,:,t)=tril(Pstar(:,:,t))+transpose(tril(Pstar(:,:,t),-1));
+  t = t+1;
+  a1(:,t) = a(:,t);
+  Pstar(:,:,t)=tril(Pstar(:,:,t))+transpose(tril(Pstar(:,:,t),-1));
+  Pinf(:,:,t)=tril(Pinf(:,:,t))+transpose(tril(Pinf(:,:,t),-1));
+  Pstar1(:,:,t) = Pstar(:,:,t);
+  Pinf1(:,:,t) = Pinf(:,:,t);
+  for i=1:pp
+    v(i,t) 	= Y(i,t)-a(mf(i),t)-trend(i,t);
+    Fstar(i,t) 	= Pstar(mf(i),mf(i),t);
+    Finf(i,t)	= Pinf(mf(i),mf(i),t);
+    Kstar(:,i,t) 	= Pstar(:,mf(i),t);
+    if Finf(i,t) > crit & newRank,  % original MJ: if Finf(i,t) > crit
+      icc=icc+1;
+      Kinf(:,i,t)	= Pinf(:,mf(i),t);
+      Linf(:,:,i,t)  	= eye(mm) - Kinf(:,i,t)*Z(i,:)/Finf(i,t);
+      L0(:,:,i,t)  	= (Kinf(:,i,t)*Fstar(i,t)/Finf(i,t) - Kstar(:,i,t))*Z(i,:)/Finf(i,t);
+      a(:,t)		= a(:,t) + Kinf(:,i,t)*v(i,t)/Finf(i,t);
+      Pstar(:,:,t)	= Pstar(:,:,t) + ...
+        Kinf(:,i,t)*transpose(Kinf(:,i,t))*Fstar(i,t)/(Finf(i,t)*Finf(i,t)) - ...
+        (Kstar(:,i,t)*transpose(Kinf(:,i,t)) +...
+        Kinf(:,i,t)*transpose(Kstar(:,i,t)))/Finf(i,t);
+      Pinf(:,:,t)	= Pinf(:,:,t) - Kinf(:,i,t)*transpose(Kinf(:,i,t))/Finf(i,t);
+      Pstar(:,:,t)=tril(Pstar(:,:,t))+transpose(tril(Pstar(:,:,t),-1));
+      Pinf(:,:,t)=tril(Pinf(:,:,t))+transpose(tril(Pinf(:,:,t),-1));
+      % new terminiation criteria by M. Ratto
+      P0=Pinf(:,:,t);
+      %             newRank = any(diag(P0(mf,mf))>crit);
+      %             if newRank==0, id = i; end,
+      if ~isempty(options_.diffuse_d),  
+        newRank = (icc<options_.diffuse_d);  
+        %if newRank & any(diag(P0(mf,mf))>crit)==0; 
+        if newRank & (any(diag(P0(mf,mf))>crit)==0 & rank(P0,crit1)==0); 
+          disp('WARNING!! Change in OPTIONS_.DIFFUSE_D in univariate DKF')
+          options_.diffuse_d = icc;
+          newRank=0;
         end
+      else
+        %newRank = any(diag(P0(mf,mf))>crit);                 
+        newRank = (any(diag(P0(mf,mf))>crit) | rank(P0,crit1));                 
+        if newRank==0, 
+          options_.diffuse_d = icc;
+        end                    
+      end,
+      %             if newRank==0, 
+      %                 options_.diffuse_d=i;   %this is buggy
+      %             end                    
+      % end new terminiation criteria by M. Ratto
+    else 
+      %% Note that : (1) rank(Pinf)=0 implies that Finf = 0, (2) outside this loop (when for some i and t the condition
+      %% rank(Pinf)=0 is satisfied we have P = Pstar and F = Fstar and (3) Finf = 0 does not imply that
+      %% rank(Pinf)=0. [stéphane,11-03-2004].	  
+      Li(:,:,i,t)    = eye(mm)-Kstar(:,i,t)*Z(i,:)/Fstar(i,t);  % we need to store Li for DKF smoother
+      a(:,t) 		= a(:,t) + Kstar(:,i,t)*v(i,t)/Fstar(i,t);
+      Pstar(:,:,t)	= Pstar(:,:,t) - Kstar(:,i,t)*transpose(Kstar(:,i,t))/Fstar(i,t);
+      Pstar(:,:,t)=tril(Pstar(:,:,t))+transpose(tril(Pstar(:,:,t),-1));
     end
-    a(:,t+1) 	 	= T*a(:,t);
-    for jnk=1:nk,
-        aK(jnk,:,t+jnk) 	 	= T^jnk*a(:,t);
-    end
-    Pstar(:,:,t+1)	= T*Pstar(:,:,t)*transpose(T)+ QQ;
-    Pinf(:,:,t+1)	= T*Pinf(:,:,t)*transpose(T);
-    P0=Pinf(:,:,t+1);
-    if newRank,
-        %newRank = any(diag(P0(mf,mf))>crit);
-        newRank	  = rank(P0,crit1);
-    end
+  end
+  a(:,t+1) 	 	= T*a(:,t);
+  for jnk=1:nk,
+    aK(jnk,:,t+jnk) 	 	= T^jnk*a(:,t);
+  end
+  Pstar(:,:,t+1)	= T*Pstar(:,:,t)*transpose(T)+ QQ;
+  Pinf(:,:,t+1)	= T*Pinf(:,:,t)*transpose(T);
+  P0=Pinf(:,:,t+1);
+  if newRank,
+    %newRank = any(diag(P0(mf,mf))>crit);
+    newRank	  = rank(P0,crit1);
+  end
 end
 
 
@@ -143,113 +143,113 @@ Pstar1 = Pstar1(:,:,1:d);
 Pinf1  = Pinf1(:,:,1:d);
 notsteady = 1;
 while notsteady & t<smpl
-    t = t+1;
-    a1(:,t) = a(:,t);
-    P(:,:,t)=tril(P(:,:,t))+transpose(tril(P(:,:,t),-1));
-    P1(:,:,t) = P(:,:,t);
-    for i=1:pp
-        v(i,t)  = Y(i,t) - a(mf(i),t) - trend(i,t);
-        Fi(i,t) = P(mf(i),mf(i),t);
-        Ki(:,i,t) = P(:,mf(i),t);
-        if Fi(i,t) > crit
-            Li(:,:,i,t)    = eye(mm)-Ki(:,i,t)*Z(i,:)/Fi(i,t);
-            a(:,t) = a(:,t) + Ki(:,i,t)*v(i,t)/Fi(i,t);
-            P(:,:,t) = P(:,:,t) - Ki(:,i,t)*transpose(Ki(:,i,t))/Fi(i,t);
-            P(:,:,t)=tril(P(:,:,t))+transpose(tril(P(:,:,t),-1));
-        end
+  t = t+1;
+  a1(:,t) = a(:,t);
+  P(:,:,t)=tril(P(:,:,t))+transpose(tril(P(:,:,t),-1));
+  P1(:,:,t) = P(:,:,t);
+  for i=1:pp
+    v(i,t)  = Y(i,t) - a(mf(i),t) - trend(i,t);
+    Fi(i,t) = P(mf(i),mf(i),t);
+    Ki(:,i,t) = P(:,mf(i),t);
+    if Fi(i,t) > crit
+      Li(:,:,i,t)    = eye(mm)-Ki(:,i,t)*Z(i,:)/Fi(i,t);
+      a(:,t) = a(:,t) + Ki(:,i,t)*v(i,t)/Fi(i,t);
+      P(:,:,t) = P(:,:,t) - Ki(:,i,t)*transpose(Ki(:,i,t))/Fi(i,t);
+      P(:,:,t)=tril(P(:,:,t))+transpose(tril(P(:,:,t),-1));
     end
-    a(:,t+1) = T*a(:,t);
-    for jnk=1:nk,
-        aK(jnk,:,t+jnk) 	 	= T^jnk*a(:,t);
-    end
-    P(:,:,t+1) = T*P(:,:,t)*transpose(T) + QQ;
-    notsteady   = ~(max(max(abs(P(:,:,t+1)-P(:,:,t))))<crit);
+  end
+  a(:,t+1) = T*a(:,t);
+  for jnk=1:nk,
+    aK(jnk,:,t+jnk) 	 	= T^jnk*a(:,t);
+  end
+  P(:,:,t+1) = T*P(:,:,t)*transpose(T) + QQ;
+  notsteady   = ~(max(max(abs(P(:,:,t+1)-P(:,:,t))))<crit);
 end
 P_s=tril(P(:,:,t))+transpose(tril(P(:,:,t),-1));
 Fi_s = Fi(:,t);
 Ki_s = Ki(:,:,t);
 L_s  =Li(:,:,:,t);
 if t<smpl
-    t_steady = t+1;
-    P  = cat(3,P(:,:,1:t),repmat(P(:,:,t),[1 1 smpl-t_steady+1]));
-    Fi = cat(2,Fi(:,1:t),repmat(Fi_s,[1 1 smpl-t_steady+1]));
-    Li  = cat(4,Li(:,:,:,1:t),repmat(L_s,[1 1 smpl-t_steady+1]));
-    Ki  = cat(3,Ki(:,:,1:t),repmat(Ki_s,[1 1 smpl-t_steady+1]));
+  t_steady = t+1;
+  P  = cat(3,P(:,:,1:t),repmat(P(:,:,t),[1 1 smpl-t_steady+1]));
+  Fi = cat(2,Fi(:,1:t),repmat(Fi_s,[1 1 smpl-t_steady+1]));
+  Li  = cat(4,Li(:,:,:,1:t),repmat(L_s,[1 1 smpl-t_steady+1]));
+  Ki  = cat(3,Ki(:,:,1:t),repmat(Ki_s,[1 1 smpl-t_steady+1]));
 end
 while t<smpl
-    t=t+1;
-    a1(:,t) = a(:,t);
-    for i=1:pp
-        v(i,t)      = Y(i,t) - a(mf(i),t) - trend(i,t);
-        if Fi_s(i) > crit
-            a(:,t) = a(:,t) + Ki_s(:,i)*v(i,t)/Fi_s(i);
-        end
-    end
-    a(:,t+1) = T*a(:,t);
-    for jnk=1:nk,
-        aK(jnk,:,t+jnk)	= T^jnk*a(:,t);
+  t=t+1;
+  a1(:,t) = a(:,t);
+  for i=1:pp
+    v(i,t)      = Y(i,t) - a(mf(i),t) - trend(i,t);
+    if Fi_s(i) > crit
+      a(:,t) = a(:,t) + Ki_s(:,i)*v(i,t)/Fi_s(i);
     end
+  end
+  a(:,t+1) = T*a(:,t);
+  for jnk=1:nk,
+    aK(jnk,:,t+jnk)	= T^jnk*a(:,t);
+  end
 end
 a1(:,t+1) = a(:,t+1);
 ri=r;
 t = smpl+1;
 while t>d+1 & t>2,
-    t = t-1;
-    for i=pp:-1:1
-        if Fi(i,t) > crit
-            ri(:,t)=transpose(Z(i,:))/Fi(i,t)*v(i,t)+transpose(Li(:,:,i,t))*ri(:,t);
-        end
+  t = t-1;
+  for i=pp:-1:1
+    if Fi(i,t) > crit
+      ri(:,t)=transpose(Z(i,:))/Fi(i,t)*v(i,t)+transpose(Li(:,:,i,t))*ri(:,t);
     end
-    r(:,t-1) = ri(:,t);
-    alphahat(:,t)	= a1(:,t) + P1(:,:,t)*r(:,t-1);
-    etahat(:,t)		= QRt*r(:,t);
-    ri(:,t-1) = transpose(T)*ri(:,t);
+  end
+  r(:,t-1) = ri(:,t);
+  alphahat(:,t)	= a1(:,t) + P1(:,:,t)*r(:,t-1);
+  etahat(:,t)		= QRt*r(:,t);
+  ri(:,t-1) = transpose(T)*ri(:,t);
 end
 if d
-    r0 = zeros(mm,d); r0(:,d) = ri(:,d);
-    r1 = zeros(mm,d);
-    for t = d:-1:2
-        for i=pp:-1:1
-            if Finf(i,t) > crit & ~(t==d & i>options_.diffuse_d),  % use of options_.diffuse_d to be sure of DKF termination
-                %r1(:,t) = transpose(Z)*v(:,t)/Finf(i,t) + ... BUG HERE in transpose(Z)
-                r1(:,t) = transpose(Z(i,:))*v(i,t)/Finf(i,t) + ...
-                    transpose(L0(:,:,i,t))*r0(:,t) + transpose(Linf(:,:,i,t))*r1(:,t);
-                r0(:,t) = transpose(Linf(:,:,i,t))*r0(:,t);
-            elseif Fstar(i,t) > crit % step needed whe Finf == 0
-                r0(:,t)=transpose(Z(i,:))/Fstar(i,t)*v(i,t)+Li(:,:,i,t)'*r0(:,t);
-            end
-        end
-        alphahat(:,t)	= a1(:,t) + Pstar1(:,:,t)*r0(:,t) + Pinf1(:,:,t)*r1(:,t);
-        r(:,t-1)		= r0(:,t);
-        etahat(:,t)		= QRt*r(:,t);
-        r0(:,t-1) = transpose(T)*r0(:,t);
-        r1(:,t-1) = transpose(T)*r1(:,t);
-    end
-    r0_0 = r0(:,1);
-    r1_0 = r1(:,1);
+  r0 = zeros(mm,d); r0(:,d) = ri(:,d);
+  r1 = zeros(mm,d);
+  for t = d:-1:2
     for i=pp:-1:1
-        if Finf(i,1) > crit,
-            %r1_0 = transpose(Z)*v(:,1)/Finf(i,1) + ... %bug with Z here
-            r1_0 = transpose(Z(i,:))*v(i,1)/Finf(i,1) + ...
-                transpose(L0(:,:,i,1))*r0_0 + transpose(Linf(:,:,i,1))*r1_0;
-            r0_0 = transpose(Linf(:,:,i,1))*r0_0;
-        elseif Fstar(i,1) > crit, % step needed when Finf=0
-            r0_0=transpose(Z(i,:))/Fstar(i,1)*v(i,1)+Li(:,:,i,1)'*r0_0;
-        end
+      if Finf(i,t) > crit & ~(t==d & i>options_.diffuse_d),  % use of options_.diffuse_d to be sure of DKF termination
+        %r1(:,t) = transpose(Z)*v(:,t)/Finf(i,t) + ... BUG HERE in transpose(Z)
+        r1(:,t) = transpose(Z(i,:))*v(i,t)/Finf(i,t) + ...
+          transpose(L0(:,:,i,t))*r0(:,t) + transpose(Linf(:,:,i,t))*r1(:,t);
+        r0(:,t) = transpose(Linf(:,:,i,t))*r0(:,t);
+      elseif Fstar(i,t) > crit % step needed whe Finf == 0
+        r0(:,t)=transpose(Z(i,:))/Fstar(i,t)*v(i,t)+Li(:,:,i,t)'*r0(:,t);
+      end
     end
-    %alphahat(:,1)  	= a(:,1) + Pstar(:,:,1)*r0_0 + Pinf(:,:,1)*r1_0; %this line is buggy
-    alphahat(:,1)  	= a1(:,1) + Pstar1(:,:,1)*r0_0 + Pinf1(:,:,1)*r1_0;
-    etahat(:,1)		= QRt*r(:,1);
+    alphahat(:,t)	= a1(:,t) + Pstar1(:,:,t)*r0(:,t) + Pinf1(:,:,t)*r1(:,t);
+    r(:,t-1)		= r0(:,t);
+    etahat(:,t)		= QRt*r(:,t);
+    r0(:,t-1) = transpose(T)*r0(:,t);
+    r1(:,t-1) = transpose(T)*r1(:,t);
+  end
+  r0_0 = r0(:,1);
+  r1_0 = r1(:,1);
+  for i=pp:-1:1
+    if Finf(i,1) > crit,
+      %r1_0 = transpose(Z)*v(:,1)/Finf(i,1) + ... %bug with Z here
+      r1_0 = transpose(Z(i,:))*v(i,1)/Finf(i,1) + ...
+        transpose(L0(:,:,i,1))*r0_0 + transpose(Linf(:,:,i,1))*r1_0;
+      r0_0 = transpose(Linf(:,:,i,1))*r0_0;
+    elseif Fstar(i,1) > crit, % step needed when Finf=0
+      r0_0=transpose(Z(i,:))/Fstar(i,1)*v(i,1)+Li(:,:,i,1)'*r0_0;
+    end
+  end
+  %alphahat(:,1)  	= a(:,1) + Pstar(:,:,1)*r0_0 + Pinf(:,:,1)*r1_0; %this line is buggy
+  alphahat(:,1)  	= a1(:,1) + Pstar1(:,:,1)*r0_0 + Pinf1(:,:,1)*r1_0;
+  etahat(:,1)		= QRt*r(:,1);
 else
-    r0 = ri(:,1);
-    for i=pp:-1:1
-        if Fi(i,1) > crit
-            r0=transpose(Z(i,:))/Fi(i,1)*v(i,1)+transpose(Li(:,:,i,1))*r0;
-        end
-    end 
-    %alphahat(:,1)	= a(:,1) + P(:,:,1)*r0;  % this line is buggy
-    alphahat(:,1)	= a1(:,1) + P1(:,:,1)*r0;
-    etahat(:,1)	= QRt*r(:,1);
+  r0 = ri(:,1);
+  for i=pp:-1:1
+    if Fi(i,1) > crit
+      r0=transpose(Z(i,:))/Fi(i,1)*v(i,1)+transpose(Li(:,:,i,1))*r0;
+    end
+  end 
+  %alphahat(:,1)	= a(:,1) + P(:,:,1)*r0;  % this line is buggy
+  alphahat(:,1)	= a1(:,1) + P1(:,:,1)*r0;
+  etahat(:,1)	= QRt*r(:,1);
 end
 
 a=a(:,1:end-1);
diff --git a/matlab/DsgeSmoother.m b/matlab/DsgeSmoother.m
index 8cbe930bd..3e40f1110 100644
--- a/matlab/DsgeSmoother.m
+++ b/matlab/DsgeSmoother.m
@@ -82,7 +82,7 @@ function [alphahat,etahat,epsilonhat,ahat,SteadyState,trend_coeff,aK] = DsgeSmoo
     if options_.kalman_algo == 1
       [alphahat,etahat,ahat,aK] = DiffuseKalmanSmoother1(T,R,Q,Pinf,Pstar,Y,trend,nobs,np,smpl,mf);
       if all(alphahat(:)==0)
-	[alphahat,etahat,ahat] = DiffuseKalmanSmoother3(T,R,Q,Pinf,Pstar,Y,trend,nobs,np,smpl,mf);
+	[alphahat,etahat,ahat,aK] = DiffuseKalmanSmoother3(T,R,Q,Pinf,Pstar,Y,trend,nobs,np,smpl,mf);
       end
     elseif options_.kalman_algo == 3
       [alphahat,etahat,ahat,aK] = DiffuseKalmanSmoother3(T,R,Q,Pinf,Pstar,Y,trend,nobs,np,smpl,mf);