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Federal Reserve Bank of Kansas City
Research Working Paper
Alternative sources of the lag dynamics of inflation
Sharon Kozicki
Peter A. Tinsley
Abstract

Data on credit ratings by the agencies with the legal status of Nationally-Recognized Statistical Rating Organizations (NRSROs) show some tendency for one-day downgrades that start from the lowest investment grade, BBB-, to travel more grades than those from neighboring grades. This would be consistent with the lower threshold of the NRSROs’ grade BBB- being at a substantial default probability, but also could occur simply because downgrades to junk severely impair some firms’ operations. A comparison of data from a non-NRSRO agency and an NRSRO shows that the latter’s regrades from BBB moved in the direction of the non-NRSRO’s earlier ratings. This suggests the non-NRSRO defines its grade BBB- more narrowly than the NRSRO.


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Sharon Kozicki & Peter A. Tinsley, Alternative sources of the lag dynamics of inflation, Federal Reserve Bank of Kansas City, Research Working Paper RWP 02-12, 2002.
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Keywords: Inflation (Finance)
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