How important are financial and labor market frictions for the business cycle dynamics of a small open economy? In order to address this question we extend the small open economy model presented in Adolfson, Laséen, Lindé and Villani (2005, 2007a, 2007b) in three important dimensions. First, we introduce the feature that exports are produced by using imported goods in addition to domestically produced goods. Second, we incorporate financial frictions in the accumulation and management of capital similar to Bernanke, Gertler and Gilchrist (1999) and Christiano, Motto and Rostagno (2003, 2007). Third, we include the search and matching framework of Mortensen and Pissarides (1994), Gertler, Sala and Trigari (2006) and Christiano, Ilut, Motto, and Rostagno (2007) into a small open economy model. As a first step, we calibrate the model and analyze the effects of a monetary tightening. It turns out that the introduction of financial and labor market frictions allow for additional interesting insights about the effects of monetary policy.