diff --git a/matlab/mult_elimination.m b/matlab/mult_elimination.m
index 368eb5ded..8c9fbf53b 100644
--- a/matlab/mult_elimination.m
+++ b/matlab/mult_elimination.m
@@ -12,7 +12,7 @@ function dr=mult_elimination(varlist,M_, options_, oo_)
 % SPECIAL REQUIREMENTS
 %   none
 
-% Copyright (C) 2003-2008 Dynare Team
+% Copyright (C) 2003-2010 Dynare Team
 %
 % This file is part of Dynare.
 %
@@ -122,9 +122,3 @@ function dr=mult_elimination(varlist,M_, options_, oo_)
       dyntable(my_title,headers,labels,res_table,lh,10,6);
       disp(' ')
   end
-      
-      
-function x=varsol(a,b,c)
-    
-    x = (kron(a,a)-kron(b,b))\c(:);
-    x = reshape(x,size(a,1),size(a,1));
\ No newline at end of file
diff --git a/tests/optimal_policy/mult_elimination_test.mod b/tests/optimal_policy/mult_elimination_test.mod
new file mode 100644
index 000000000..0e87973b6
--- /dev/null
+++ b/tests/optimal_policy/mult_elimination_test.mod
@@ -0,0 +1,67 @@
+// Test of mult_elimination function
+
+// parameters value is set to posterior mean as computed by ls1.mod
+// dR in objective function
+
+var A de dq dR pie pie_obs pie_s R R_obs y y_obs y_s ;
+varexo e_A e_pies e_q e_ys ;
+
+parameters psi1 psi2 psi3 rho_R tau alpha rr k rho_q rho_A rho_ys rho_pies ls1_r s1 s2 s3 s4 s5;
+
+psi1 = 1.54;
+psi2 = 0.25;
+psi3 = 0.25;
+rho_R = 0.5;
+alpha = 0.3;
+rr = 2.51;
+k = 0.5;
+tau = 0.5;
+rho_q = 0.4;
+rho_A = 0.2;
+rho_ys = 0.9;
+rho_pies = 0.7;
+
+model(linear);
+y = y(+1) - (tau +alpha*(2-alpha)*(1-tau))*(R-pie(+1))-alpha*(tau +alpha*(2-alpha)*(1-tau))*dq(+1) + alpha*(2-alpha)*((1-tau)/tau)*(y_s-y_s(+1))-A(+1);
+pie = exp(-rr/400)*pie(+1)+alpha*exp(-rr/400)*dq(+1)-alpha*dq+(k/(tau+alpha*(2-alpha)*(1-tau)))*y+alpha*(2-alpha)*(1-tau)/(tau*(tau+alpha*(2-alpha)*(1-tau)))*y_s;
+pie = de+(1-alpha)*dq+pie_s;
+//R = rho_R*R(-1)+(1-rho_R)*(psi1*pie+psi2*(y+alpha*(2-alpha)*((1-tau)/tau)*y_s)+psi3*de)+e_R;
+dq = rho_q*dq(-1)+e_q;
+y_s = rho_ys*y_s(-1)+e_ys;
+pie_s = rho_pies*pie_s(-1)+e_pies;
+A = rho_A*A(-1)+e_A;
+y_obs = y-y(-1)+A;
+pie_obs = 4*pie;
+R_obs = 4*R;
+dR = R-R(-1);
+end;
+
+shocks;
+var e_q = 2.5^2;
+var e_A = 1.89;
+var e_ys = 1.89;
+var e_pies = 1.89;
+end;
+
+planner_objective 0.25*pie_obs^2+y^2+0.1*dR^2;
+
+ramsey_policy(order=1,irf=0,planner_discount=0.95);
+
+dr2 = mult_elimination({'R'},M_,options_,oo_);
+
+k1 = oo_.dr.nstatic+(1:oo_.dr.npred);
+k2 = strmatch('mult_',M_.endo_names(oo_.dr.order_var(k1),:));
+k3 = k1(setdiff(1:oo_.dr.npred,k2));
+k4 = oo_.dr.order_var(k3);
+
+V0 = oo_.var(k4,k4);
+
+
+Atest = [dr2.M1(k3,:) dr2.M2(k3,:) dr2.M4(k3,:); eye(6) zeros(6,10);zeros(4,16)];
+Btest = [dr2.M3(k3,:); zeros(6,4); eye(4)];
+
+V1=lyapunov_symm(Atest,Btest*M_.Sigma_e*Btest',options_.qz_criterium,options_.lyapunov_complex_threshold);
+
+if max(max(abs(V1(1:6,1:6)-V0)))
+   disp('Test OK')
+end
\ No newline at end of file