Large shocks travel fast

We document a sizeable increase in the frequency of price adjustments following the large energy shocks of 2022. We use a tractable New Keynesian model, calibrated to the preshock data, to interpret such a pattern. The calibration highlights the state dependence of firms' decisions: prices are adjusted rapidly when markups are misaligned. In the model, a large cost shock triggers a swift increase in the frequency of price adjustments, causing a rapid pass-through from costs to prices. Time-dependent models, such as the Calvo model, miss this frequency response, failing to capture the sudden inflation surge after a large shock.