diff --git a/preprocessor b/preprocessor
index 050f1cdd7..d530ccd01 160000
--- a/preprocessor
+++ b/preprocessor
@@ -1 +1 @@
-Subproject commit 050f1cdd74c92eb7c65c7151980ce5c411fed378
+Subproject commit d530ccd012cb6b66f778b88d638c4f9513a177e5
diff --git a/tests/Makefile.am b/tests/Makefile.am
index 6cda69122..f0c997df8 100644
--- a/tests/Makefile.am
+++ b/tests/Makefile.am
@@ -192,6 +192,7 @@ MODFILES = \
 	external_function/first_and_2nd_deriv_given_dll_namespace.mod \
 	external_function/no_deriv_given.mod \
 	external_function/no_deriv_given_dll.mod \
+	external_function/extfun_in_mlv.mod \
 	seeds.mod \
 	minimal_state_space_system/as2007_minimal.mod \
 	minimal_state_space_system/sw_minimal.mod \
diff --git a/tests/external_function/extfun_in_mlv.mod b/tests/external_function/extfun_in_mlv.mod
new file mode 100644
index 000000000..3b3fddd99
--- /dev/null
+++ b/tests/external_function/extfun_in_mlv.mod
@@ -0,0 +1,47 @@
+// Tests the presence of an external function call in a model local variable
+var y, c, k, a, h, b;
+varexo e, u;
+
+parameters beta, rho, alpha, delta, theta, psi, tau;
+
+alpha = 0.36;
+rho   = 0.95;
+tau   = 0.025;
+beta  = 0.99;
+delta = 0.025;
+psi   = 0;
+theta = 2.95;
+
+phi   = 0.1;
+
+external_function(nargs=2, name=extFunNoDerivs, first_deriv_provided=extFunDeriv);
+
+model;
+# foo = extFunNoDerivs((1-delta),k(-1));
+c*theta*h^(1+psi)=(1-alpha)*y;
+k = beta*(((exp(b)*c)/(exp(b(+1))*c(+1)))
+    *(exp(b(+1))*alpha*y(+1)+(1-delta)*k));
+y = exp(a)*(k(-1)^alpha)*(h^(1-alpha));
+k = exp(b)*(y-c)+foo;
+a = rho*a(-1)+tau*b(-1) + e;
+b = tau*a(-1)+rho*b(-1) + u;
+end;
+
+initval;
+y = 1.08068253095672;
+c = 0.80359242014163;
+h = 0.29175631001732;
+k = 11.08360443260358;
+a = 0;
+b = 0;
+e = 0;
+u = 0;
+end;
+
+shocks;
+var e; stderr 0.009;
+var u; stderr 0.009;
+var e, u = phi*0.009*0.009;
+end;
+
+stoch_simul;