Rating Inflation versus Deflation : On Procyclical Credit Ratings

Credit rating agencies play a crucial role in financial markets. There are two competing views regarding their behavior: some argue that they engage in rating inflation, while others suggest that they deflate ratings. This article offers a rationale that reconciles the two opposite arguments. We find that both rating inflation and rating deflation can occur in equilibrium. Furthermore, we show that credit rating is procyclical: rating inflation is more likely to happen in a boom while rating deflation is more likely to happen in a recession

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Year of publication:	2013
Authors:	Chen, Yongmin
Other Persons:	Gu, Dingwei (contributor) ; Yao, Zhiyong (contributor)
Publisher:	[2013]: [S.l.] : SSRN
Subject:	Kreditwürdigkeit \| Credit rating \| Deflation \| Konjunktur \| Business cycle \| Inflation \| Kreditrisiko \| Credit risk \| Ratingagentur \| Rating agency

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