It is almost universally agreed that the PIP cannot be taken seriously, except perhaps as an extreme position taken to promote a discussion. Furthermore, due to the fact that Fischer and others demonstrated that the REH does not necessarily imply PIP, acceptance of the REH as a modelling device is also almost universal. The Lucas critique is valid, but its empirical short-run relevance is seriously doubted by both theoretical econometricians (Favero and Hendry, 1992) and applied policy modellers. A reason for this luke-warm reception may be the absence of a credible theory of how agents learn new policy rules.

Further Reading