A new model to measure monetary policy surprises

Ruben Fernandez Fuertes, a Bocconi PhD student who received a grant from Baffi Centre in May 2025, has just developed a multi-agent LLM framework that processes Federal Reserve communications to measure monetary policy surprises. The framework is discussed in the paper “Monetary Policy Shocks: A New Hope — Large Language Models and Central Bank Communication”, published in October 2025.

In the paper, the Bocconi PhD student demonstrates that conditional expectations can be extracted directly from central bank communications throughmulti-agent Large Language Model synthesis, achieving lower measurement error without ex-post econometric cleaning. The New Hope is methodological: as extraction methods become more sophisticated, incorporating richer information sources or more advanced architectures, identification quality improves at the source rather than through post-hoc adjustments.

This paper establishes the feasibility of this approach by demonstrating that even thes implest

implementation—processing only Beige Books and minutes— achieves measurement advantages over existing methods. To further establish advantages of the procedure, Fernandez Fuertes runs three validation exercises. First, he runs tests that show that his measure has minimal measurement error.

Second, he shows that it produces theoretically consistent impulse responses showing persistent contractionary transmission. Third, he shows that it generates economically significant trading profits.

The findings validate the Fed’s communication strategy: public documents explain half of all decisions, demonstrating successful information transmission to attentive observers. For researchers, the framework offers a scalable alternative to both handcoded narrative measures and high-frequency identification. What remains unpredictable are the genuine policy surprises, that can now be measured in real-time from the public record alone, offering new hope for both researchers studying monetary transmission and practitioners managing interest rate risk.