Banks are both the center for liquidity creation and financial crisis due to its role in thernâ€˜maturity transformationâ€™ of short term deposits into long term loans make banks inherentlyrnvulnerable to liquidity risk, both of an institution specific nature and that which affects marketsrnas a whole. The study had assessed the factors affecting liquidity of commercial banks inrnEthiopia by using the data over the period of 2011 to 2015 on sample size of twelve commercialrnbanks in Ethiopia out of 17 in total with the aim of investigating macroeconomic as well asrngovernment policy and bank specific variables which affecting the liquidity of commercial banksrnin Ethiopia. The study employed sequential mixed research method approach by combiningrnsecondary data through balanced random effect regression model and interviews. The results ofrnthe study revealed that all macroeconomic and government policy variables were statisticallyrnsignificant in determining the liquidity of commercial banks in Ethiopia. Among those variablesrnforeign direct investment and NBE-bill purchase had negative effect whereas unemployment raternand real GDP growth rate had positive relationship with banksâ€™ liquidity. On the other hand,rnamong the bank-specific factors funding cost was statistically insignificant variable in affectingrncommercial banking liquidity in Ethiopia whereas level of deposit and bank size had statisticallyrnsignificant and negative relationship with banksâ€™ liquidity. Thus, the study suggests thatrnmacroeconomic factors are more important than firm-specific in determining the Ethiopianrncommercial banking liquidity. Therefore, banks shall be more concerned about macroeconomicrnenvironment in addition to internal environment as a cornerstone while reviewingrnits policy and developing strategies to enhance their liquidity position.rnKey words: Ethiopian commercial banks, liquidity ratio, liquid assets, NBE â€“bills, deposit