How about this..although I didn't see any case where the indicator variable was anything other than 0
DATA HAVE;
INPUT firmid year rating $ notch $;
CARDS;
1001 1990 AAA middle
1001 1991 AA+ plus
1001 1992 AA+ plus
1001 1993 AA middle
1001 1994 AA+ plus
1002 1990 BBB+ plus
1002 1991 BBB+ plus
1002 1992 A- minus
1002 1993 A+ plus
1002 1994 A middle
1002 1995 A- minus
1003 1990 BBB middle
1003 1991 BBB- minus
1003 1992 BB+ plus
1003 1993 BB+ plus
1003 1994 BB- minus
1003 1995 BB- minus
;
RUN;
PROC SQL;
CREATE TABLE WANT AS
SELECT
Curr.*
,case when lastyear.notch='middle' and curr.notch='plus' and year1.notch='plus' and year2.notch='plus' then 1 else 0 end as Indicator_Var
FROM
HAVE as curr
left join have as LastYear
on curr.firmid=lastyear.firmid
and curr.year-1=lastyear.year
left join have as year1
on curr.firmid=year1.firmid
and curr.year+1=year1.year
left join have as year2
on curr.firmid=year2.firmid
and curr.year+2=year2.year;
quit;
