I am trying to map shocks from VAR to discount-rate and cash-flows news following the paper of Campbell and Vuolteenaho (2004). It is said that news are a linear combination of shocks from VAR at (t+1) (see the formula on the picture). However, that means that both news will be perfectly correlated just by construction, or do I miss something?

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Maybe anybody did it before and can explain it? Any help is very appreciated!



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