diff --git a/matlab/check_for_calibrated_covariances.m b/matlab/check_for_calibrated_covariances.m
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+++ b/matlab/check_for_calibrated_covariances.m
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+function estim_params=check_for_calibrated_covariances(xparam1,estim_params,M)
+% function check_for_calibrated_covariances(xparam1,estim_params,M)
+% find calibrated covariances to consider during estimation
+% Inputs
+%   -xparam1        [vector] parameters to be estimated
+%   -estim_params   [structure] describing parameters to be estimated
+%   -M              [structure] describing the model
+%
+% Outputs
+%   -estim_params   [structure] describing parameters to be estimated
+%
+% Notes: M is local to this function and not updated when calling
+% set_all_parameters
+
+% Copyright (C) 2013 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 <http://www.gnu.org/licenses/>.
+Sigma_e_calibrated=M.Sigma_e;
+H_calibrated=M.H;
+%check covariance for structural errors
+covariance_pos=find(tril(Sigma_e_calibrated,-1)); %off-diagonal elements set by covariances before updating correlation matrix to reflect estimated covariances
+covariance_pos_ME=find(tril(H_calibrated,-1)); %off-diagonal elements set by covariances before updating correlation matrix to reflect estimated covariances
+
+%locally updated M
+M = set_all_parameters(xparam1,estim_params,M);
+
+correlation_pos=find(tril(M.Correlation_matrix,-1)); %off-diagonal elements set by correlations after accounting for estimation
+calibrated_covariance_pos=covariance_pos(~ismember(covariance_pos,correlation_pos));
+if any(calibrated_covariance_pos)
+    [rows, columns]=ind2sub(size(M.Sigma_e),calibrated_covariance_pos); %find linear indices of lower triangular covariance entries
+    estim_params.calibrated_covariances.position=[calibrated_covariance_pos;sub2ind(size(M.Sigma_e),columns,rows)]; %get linear entries of upper triangular parts
+    estim_params.calibrated_covariances.cov_value=Sigma_e_calibrated(estim_params.calibrated_covariances.position);  
+end
+
+correlation_pos_ME=find(tril(M.Correlation_matrix_ME,-1)); %off-diagonal elements set by correlations after accounting for estimation
+calibrated_covariance_pos_ME=covariance_pos_ME(~ismember(covariance_pos_ME,correlation_pos_ME));
+if any(calibrated_covariance_pos_ME)
+    [rows, columns]=ind2sub(size(M.H),calibrated_covariance_pos_ME); %find linear indices of lower triangular covariance entries
+    estim_params.calibrated_covariances_ME.position=[calibrated_covariance_pos_ME;sub2ind(size(M.H),columns,rows)]; %get linear entries of upper triangular parts
+    estim_params.calibrated_covariances_ME.cov_value=H_calibrated(estim_params.calibrated_covariances_ME.position);  
+end
+