diff --git a/preprocessor/ModFile.cc b/preprocessor/ModFile.cc
index 27299deac983001174e56b479f11879753001432..649440c95d3d79fd9a22e326b55acec4fdee397f 100644
--- a/preprocessor/ModFile.cc
+++ b/preprocessor/ModFile.cc
@@ -594,6 +594,9 @@ ModFile::writeOutputFiles(const string &basename, bool clear_all, bool no_log, b
     mOutputFile << "M_.H = 0;" << endl
                 << "M_.Correlation_matrix_ME = 1;" << endl;
 
+  // May be later modified by a shocks block
+  mOutputFile << "M_.sigma_e_is_diagonal = 1;" << endl;
+
   // Initialize M_.det_shocks
   mOutputFile << "M_.det_shocks = [];" << endl;
 
diff --git a/preprocessor/Shocks.cc b/preprocessor/Shocks.cc
index 25adbdee9a1d182c006c50799b4828f25f74ac9d..8373d9d934c550390f4c03c03df9dcbe36db44e3 100644
--- a/preprocessor/Shocks.cc
+++ b/preprocessor/Shocks.cc
@@ -89,9 +89,14 @@ ShocksStatement::writeOutput(ostream &output, const string &basename) const
   writeDetShocks(output);
   writeVarAndStdShocks(output);
   writeCovarAndCorrShocks(output);
+
+  /* M_.sigma_e_is_diagonal is initialized to 1 by ModFile.cc.
+     If there are no off-diagonal elements, and we are not in overwrite mode,
+     then we don't reset it to 1, since there might be previous shocks blocks
+     with off-diagonal elements. */
   if (covar_shocks.size()+corr_shocks.size() > 0)
     output << "M_.sigma_e_is_diagonal = 0;" << endl;
-  else
+  else if (overwrite)
     output << "M_.sigma_e_is_diagonal = 1;" << endl;
 }