New LLM index tracks euro area geoeconomic tension
ECB researchers have developed a new index to measure geopolitical and geoeconomic tension in the euro area. The index uses Large Language Models (LLMs) to analyze a vast dataset of local-language newspaper articles from 1999 to 2025.
LLMs map economic weaponization
The LGPT index, developed by ECB researchers, uses Large Language Models to provide a detailed narrative of geoeconomic and geopolitical tensions in the euro area over the past 25 years.
This novel multilingual LLM approach analyzes nearly 20 million local-language newspaper articles from France, Germany, Italy, and Spain, spanning from 1999 to 2025.
Unlike traditional dictionary-based methods, the LLM allows for a granular distinction between geopolitical and geoeconomic tensions, specifically identifying the weaponization of economic policy.
It further breaks down geoeconomic tensions into subindices, pinpointing sources such as trade, energy, and finance.
This detailed classification enables more accurate economic analysis of how external pressures impact the euro area economy, including effects on output and inflation.
The method is also capable of extracting trends regarding international institutional actors involved in these developments, offering a comprehensive view of evolving global dynamics.
Navigating a fragmented world
Recent tectonic geopolitical shifts have made measuring geoeconomic tensions crucial for economic analysis.
The post-WWII international economic order, characterized by "hyperglobalisation," has given way to a phase of "slowbalisation" marked by increased fragmentation.
This period has seen an unprecedented rise in the weaponization of economic interdependence, notably impacting the EU and euro area following events like Russia's 2022 invasion of Ukraine.
These developments challenge the open-economy paradigm and its multilateral framework, creating significant implications for economic output, inflation, and financial stability.
Accurate measurement of these complex intertwining forces is therefore essential for policymakers.
AI's analytical edge
This paper provides a crucial methodological advancement, moving beyond traditional dictionary-based methods to offer a more nuanced understanding of geoeconomic forces.
The granularity achieved through LLMs allows for a precise identification of tension sources, which is vital for targeted policy responses in an increasingly fragmented global economy.
While promising, the index's real-world predictive power and its integration into standard economic models will require further validation and broad adoption by analysts.