Prior to the work of Sargent and Wallace, macroeconomic models were largely based on the adaptive expectations assumption.
Many economists found this unsatisfactory since it assumes that agents may repeatedly make systematic errors and can only revise their expectations in a backward-looking way.
Economics has firm foundations in assumption of rationality, so the systematic errors made by agents in macroeconomic theory were considered unsatisfactory by Sargent and Wallace.
When applying rational expectations within a macroeconomic framework, Sargent and Wallace produced the policy-ineffectiveness proposition, according to which the government could not successfully intervene in the economy if attempting to manipulate output.
If the government employed monetary expansion in order to increase output, agents would foresee the effects, and wage and price expectations would be revised upwards accordingly.
In fact, Sargent himself admitted that macroeconomic policy could have nontrivial effects, even under the rational expectations assumption, in the preface to the 1987 edition of his textbook Dynamic Macroeconomic Theory: Despite the criticisms, Anatole Kaletsky has described Sargent and Wallace's proposition as a significant contributor to the displacement of Keynesianism from its role as the leading economic theory guiding the governments of advanced nations.
For new classicals, countercyclical stimulation of aggregate demand through monetary policy instruments is neither possible nor beneficial if the assumptions of the theory hold.
[4] So, it has to be realized that the precise design of the assumptions underlying the policy-ineffectiveness proposition makes the most influential, though highly ignored and misunderstood, scientific development of new classical macroeconomics.