This paper proposes a Sieve Simulated Method of Moments (Sieve‐SMM) estimator for the parameters and the distribution of the shocks in nonlinear dynamic models where the likelihood and the moments are not tractable. An important concern with SMM, which matches sample with simulated moments, is that a parametric distribution is required. However, economic quantities that depend on this distribution, such as welfare and asset prices, can be sensitive to misspecification. The Sieve‐SMM estimator addresses this issue by flexibly approximating the distribution of the shocks with a Gaussian and tails mixture sieve. The asymptotic framework provides consistency, rate of convergence, and asymptotic normality results, extending existing results to a new framework with more general dynamics and latent variables. An application to asset pricing in a production economy shows a large decline in the estimates of relative risk aversion, highlighting the empirical relevance of misspecification bias.