Which socio-economic groups are most vulnerable to welfare declines during a macroeconomic shock? After clarifying the difference between poverty and vulnerability, this paper presents an analytical framework and applies it to panel data from Peru. Major findings are: (1) Households with better educated heads are less vulnerable; (2) Female headed households are no more vulnerable than male headed households; (3) Households with more children are more vulnerable; (4) Transfer networks that assist the poor in relatively stable periods do not protect them during a major shock, unless they originate from outside Peru; and (5) Peru's social security program is targeted neither to vulnerable nor to poor households, but other transfer programs are better targeted.