We propose a novel combination of algorithms for jointly estimating parameters and unobservable states in a nonlinear state space system. We exploit an approximation to the marginal likelihood to guide a Particle Marginal Metropolis-Hastings algorithm. While this algorithm seemingly targets...

In a real business cycle model, an agent's fear of model misspecification interacts with stochastic volatility to induce time varying worst case scenarios. These time varying worst case scenarios capture a notion of animal spirits where the probability distributions used to evaluate decision...