European Central Bank publishes working paper on an LLM based euro area geoeconomic tension index

The European Central Bank has published a staff working paper presenting a new Large-language-model Geoeconomic and GeoPolitical Tension index for the euro area, while noting that the paper reflects the authors’ views rather than the ECB’s. The index uses local-language newspaper coverage from France, Germany, Italy and Spain over 1999 to 2025 to measure geopolitical tensions in the broad sense, then separates out a distinct geoeconomic component tied to the use of economic policy and interdependence as instruments of state power. It further breaks geoeconomic tensions into trade, energy, finance and technology subindices to support more granular euro area economic analysis. The paper says the framework combines a multilingual BERT model and GPT-4o to classify nearly 20 million articles, producing a time series that captures major events such as the Kosovo conflict, the Sept. 11 attacks, the Iraq war, the euro area sovereign debt crisis, Brexit, Russia’s invasion of Ukraine and the rise in tariff tensions after the new United States administration took office in 2025. The authors find the geoeconomic index follows a more distinct path than standard geopolitical risk measures, with euro area peaks often concentrated in finance during the sovereign debt crisis, in trade during the United States-China trade conflict and April 2025 tariff announcements, and in energy and trade after the Ukraine invasion. In an illustrative Bayesian structural VAR exercise, geoeconomic tension shocks are associated with weaker output and short-run inflation pressure, while the transmission differs by source, with energy shocks appearing more inflationary and finance- and bond-market relevant and trade shocks looking more demand-driven and disinflationary. The paper says the geoeconomic index and subindices are available through online dashboards and are updated weekly.