diff --git a/doc/manual/source/the-model-file.rst b/doc/manual/source/the-model-file.rst
index b45fce6ad8f8082c6d96a3e18826cd1b882cf5cc..4eee8396bf10d19f3c0e2ed78e5eaa8c28b30889 100644
--- a/doc/manual/source/the-model-file.rst
+++ b/doc/manual/source/the-model-file.rst
@@ -5309,6 +5309,13 @@ which is described below.
rate or a model with irreversible investment). For specifying the
necessary complementarity conditions, see :opt:`lmmcp`.
+ .. option:: use_first_order_solution
+
+ Utilize the model simulation based on a first-order local
+ approximation as the initial guess for the nonlinear solver in
+ each period. If this is not applied, solution in previous
+ period is used.
+
Typology and ordering of variables
----------------------------------
diff --git a/matlab/default_option_values.m b/matlab/default_option_values.m
index a1d501d980702871ec3c5b698f2e98cda5b330e1..300b4c6114fdac8e970ca01769904bd75ffda4bd 100644
--- a/matlab/default_option_values.m
+++ b/matlab/default_option_values.m
@@ -12,7 +12,7 @@ function options_ = default_option_values(M_)
% SPECIAL REQUIREMENTS
% none
-% Copyright © 2018-2024 Dynare Team
+% Copyright © 2018-2025 Dynare Team
%
% This file is part of Dynare.
%
@@ -195,8 +195,7 @@ ep.use_bytecode = 0;
% Initialization of the perfect foresight equilibrium paths
% * init=0, previous solution is used.
% * init=1, a path generated with the first order reduced form is used.
-% * init=2, mix of cases 0 and 1.
-ep.init = 0;
+ep.use_first_order_solution_as_initial_guess = false;
% Maximum number of iterations for the deterministic solver.
ep.maxit = 500;
% Number of periods for the perfect foresight model.
diff --git a/matlab/ep/euler_equation_error.m b/matlab/ep/euler_equation_error.m
index 3bb304a5697dfe7a67b054bb6ed844da3960deb0..c8b04725fabaf6415b0df3e8e4ab487bc0facd2b 100644
--- a/matlab/ep/euler_equation_error.m
+++ b/matlab/ep/euler_equation_error.m
@@ -1,7 +1,7 @@
function e = euler_equation_error(y0,x,innovations,M_,options_,oo_,pfm,nodes,weights)
% e = euler_equation_error(y0,x,innovations,M_,options_,oo_,pfm,nodes,weights)
-% Copyright © 2016-2023 Dynare Team
+% Copyright © 2016-2025 Dynare Team
%
% This file is part of Dynare.
%
@@ -23,7 +23,7 @@ ep = options_.ep;
y1 = extended_path_core(ep.periods, ...
M_.endo_nbr, M_.exo_nbr, ...
innovations.positive_var_indx, ...
- x, ep.init, y0, oo_.steady_state, ...
+ x, ep.use_first_order_solution_as_initial_guess, y0, oo_.steady_state, ...
0, ...
ep.stochastic.order, M_, ...
pfm, ep.stochastic.algo, ...
@@ -38,7 +38,7 @@ for i=1:length(nodes)
x2 = x1;
x2(2,:) = x2(2,:) + nodes(i,:);
y2 = extended_path_core(ep.periods, M_.endo_nbr, M_.exo_nbr, ...
- innovations.positive_var_indx, x2, ep.init, ...
+ innovations.positive_var_indx, x2, ep.use_first_order_solution_as_initial_guess, ...
y1, oo_.steady_state, 0, ...
ep.stochastic.order, M_, pfm, ep.stochastic.algo, ...
ep.solve_algo, ep.stack_solve_algo, options_.lmmcp, ...
diff --git a/matlab/ep/extended_path.m b/matlab/ep/extended_path.m
index fe1bf640ef13e7db0067614db43aff715e320612..2b807d36f8b3de236ab821cbd7284f85cac94f1e 100644
--- a/matlab/ep/extended_path.m
+++ b/matlab/ep/extended_path.m
@@ -19,7 +19,7 @@ function [ts,oo_] = extended_path(initialconditions, samplesize, exogenousvariab
%
% SPECIAL REQUIREMENTS
-% Copyright © 2009-2023 Dynare Team
+% Copyright © 2009-2025 Dynare Team
%
% This file is part of Dynare.
%
@@ -68,7 +68,7 @@ while (t <= samplesize)
initialguess = [];
end
[endogenous_variables_paths(:,t), info_convergence, endogenousvariablespaths] = extended_path_core(ep.periods, M_.endo_nbr, M_.exo_nbr, innovations.positive_var_indx, ...
- spfm_exo_simul, ep.init, endogenous_variables_paths(:,t-1), ...
+ spfm_exo_simul, ep.use_first_order_solution_as_initial_guess, endogenous_variables_paths(:,t-1), ...
oo_.steady_state, ...
verbosity, ep.stochastic.order, ...
M_, pfm, ep.stochastic.algo, ep.solve_algo, ep.stack_solve_algo, ...
@@ -106,4 +106,4 @@ if any(isnan(endogenous_variables_paths(:)))
end
ts = dseries(transpose(endogenous_variables_paths), initial_period, M_.endo_names);
-oo_.endo_simul = transpose(ts.data);
\ No newline at end of file
+oo_.endo_simul = transpose(ts.data);
diff --git a/matlab/ep/extended_path_initialization.m b/matlab/ep/extended_path_initialization.m
index 362788dec98ee0ca319c1a1338614a02fff9a562..0359b9ee23ad5f1f61e4e29ebb5271def398ba89 100644
--- a/matlab/ep/extended_path_initialization.m
+++ b/matlab/ep/extended_path_initialization.m
@@ -16,7 +16,7 @@ function [initial_conditions, innovations, pfm, ep, verbosity, options_, oo_] =
%
% SPECIAL REQUIREMENTS
-% Copyright © 2016-2024 Dynare Team
+% Copyright © 2016-2025 Dynare Team
%
% This file is part of Dynare.
%
@@ -71,7 +71,7 @@ options_.stack_solve_algo = ep.stack_solve_algo;
% Compute the first order reduced form if needed.
dr = struct();
-if ep.init
+if ep.use_first_order_solution_as_initial_guess
options_.order = 1;
oo_.dr=set_state_space(dr,M_);
[oo_.dr,info,M_.params] = resol(0,M_,options_,oo_.dr,oo_.steady_state, oo_.exo_steady_state, oo_.exo_det_steady_state);
diff --git a/matlab/ep/extended_path_mc.m b/matlab/ep/extended_path_mc.m
index fcfe284b54c0270eea6db5b74443ca5db2a81a73..b49f4bcbba5c3ca689a5d392352b08a5204c0845 100644
--- a/matlab/ep/extended_path_mc.m
+++ b/matlab/ep/extended_path_mc.m
@@ -19,7 +19,7 @@ function Simulations = extended_path_mc(initialconditions, samplesize, replic, e
%
% SPECIAL REQUIREMENTS
-% Copyright © 2016-2023 Dynare Team
+% Copyright © 2016-2025 Dynare Team
%
% This file is part of Dynare.
%
@@ -81,8 +81,8 @@ if ep.parallel
spfm_exo_simul(2,:) = shocks(t-1,:);
exogenous_variables_paths(:,t) = shocks(t-1,:);
[endogenous_variables_paths(:,t), info_convergence] = extended_path_core(ep.periods, M_.endo_nbr, M_.exo_nbr, innovations_.positive_var_indx, ...
- spfm_exo_simul, ep.init, endogenous_variables_paths(:,t-1), ...
- oo__.steady_state, ...
+ spfm_exo_simul, ep.use_first_order_solution_as_initial_guess, endogenous_variables_paths(:,t-1), ...
+ oo__.steady_state, ...
ep.verbosity, ep.stochastic.order, ...
M_, pfm,ep.stochastic.algo, ep.solve_algo, ep.stack_solve_algo, ...
options_.lmmcp, options_, oo__);
@@ -110,8 +110,8 @@ else
spfm_exo_simul(2,:) = shocks(t-1,:);
exogenous_variables_paths(:,t) = shocks(t-1,:);
[endogenous_variables_paths(:,t), info_convergence] = extended_path_core(ep.periods, M_.endo_nbr, M_.exo_nbr, innovations.positive_var_indx, ...
- spfm_exo_simul, ep.init, endogenous_variables_paths(:,t-1), ...
- oo_.steady_state, ...
+ spfm_exo_simul, ep.use_first_order_solution_as_initial_guess, endogenous_variables_paths(:,t-1), ...
+ oo_.steady_state, ...
ep.verbosity, ep.stochastic.order, ...
M_, pfm,ep.stochastic.algo, ep.solve_algo, ep.stack_solve_algo, ...
options_.lmmcp, options_, oo_);
diff --git a/preprocessor b/preprocessor
index 86822b5e6e8b5fc3f98673d6e6d21eed8051e2d4..991759b2c7c60b59a41e1079cdfcf938170d716c 160000
--- a/preprocessor
+++ b/preprocessor
@@ -1 +1 @@
-Subproject commit 86822b5e6e8b5fc3f98673d6e6d21eed8051e2d4
+Subproject commit 991759b2c7c60b59a41e1079cdfcf938170d716c