Why are the agencies motivated to give stable ratings? to reduce debt market prices volatility? how does it help them?
Credit Ratings are used to rank credit risk, not measure or estimate the probability of default. Market-wide risk may rise or fall with business cycles or other systemic concerns. If the rating agencies followed an absolute scale, they would have to measure those factors in addition to the risks specific to the firm. I understand that to mean that it’d be more expensive for them to account for those factors and its debatable whether a change would even increase the value of their ratings (or simply add noise).
The readings specifically give reduction of market volatility as the reason but also describe the relation to the business cycle. (pg 395-398 in the FI book)